New Economic Policy Initiative, and President of the Academy of the Social Sciences in Australia.
Prior to that he was on the faculty at the University of Chicago and the Massachusetts Institute of Technology.
Holden received an AM and a PhD in economics from Harvard University.
He applied the “Page 99 Test” to his new book, Money in the Twenty-First Century: Cheap, Mobile, and Digital, and reported the following:
From page 99:Visit Richard Holden's website.There is an intellectual history to the idea that what it is known as “fractional reserve banking” could be done away with and that there could be a full separation of credit and money creation. The so-called “Chicago Plan” was a banking-reform plan proposed by a number of University of Chicago economists in the aftermath of the Great Depression. The plan proposed a complete separation of the monetary and credit functions of the banking system. To achieve this, the plan had two limbs. First, deposits would need to have 100% backing by government-issued money. Second, financing of new (bank) credit could only occur through borrowing of government-issued money, or from retained earnings. That is, there could be no credit provision through the creation of money by commercial banks.This page of Money in the 21st Century goes to the heart of the book’s core argument—which is that the United States Federal Reserve should create a Central Bank Digitial Currency (CBDC) that I dub “Fedcoin.” This is an essential step to ward off the creation of a potentially dominant private digital currency, like the one Facebook attempted with Libra/Diem. It is also necessary to ensure that China’s eCNY digital Yuan does not leapfrog the US Dollar as the world’s global reserve currency.
Perhaps ironically, this would return the way the Fed influences interest rates to the way it was done during the term of Paul Volcker as Fed chair in the late 1970s and early 1980s. When Volcker took over as Fed chair the Federal Funds Rate was managed by increasing or decreasing the amount of reserves in the banking system. The Fed would create a shortage of reserves when they wanted to push official rates up and would create a surplus of reserves when they want to push the rate down. Volcker changed this in a meeting on October 6, 1979 that also ushered in his era of inflation-conquering high interest rates. Volcker instituted a change where the quantity of growth in money supply (in reality, bank reserves) would be set and the interest rate would adjust to equilibrate supply and demand. This was consistent with conservative economist Milton Friedman’s doctrine of monetarism which held that inflation was very closely linked to growth of the money supply—captured in Friedman’s aphorism “inflation is always and everywhere a monetary phenomenon.”
There is one important way in which Fedcoin would expand the toolkit of central bankers. And that concerns what happens when they want to set interest rates really low. Recall from earlier that, since the early 1990s, many central banks in advanced economies—the Fed included—have made explicit an inflation target. That is, they try to adjust interest rates to keep inflation within some kind of low (but not zero) level. In the U.S. that’s 2%. In Australia it’s a band between 2 and 3 percent. But the idea is the same—low, stable inflation. Remember that on of Raghu Rajan’s key accomplishments at the RBI was to chart a path to RBI credibility on inflation. As he put it “the best way for the central bank to generate growth in the long run is for it to keep inflation low and steady…in order to generate sustainable growth, we have to fight inflation first.”
Creating a Fedcoin involves a number of important design choices, and page 99 speaks to perhaps the most important of those choices. One option is to allow everyone to have a (digital) account at the Fed, thereby removing the need for the current commercial banking system altogether. A second option—one which I argue is better—is for the current commercial banking system to operate along side Fedcoin. But this would still change commercial banking. At present, commercial banks essentially create money when they make loans. When a loan is made banks put the loan amount in an account for the borrower (a liability for the bank), and create a corresponding obligation for the borrower to repay the loan (an asset for the bank).
Fedcoin would change this. The Fed would control the amount of Fedcoins in circulation, and therefore perform all credit creation. Commercial banks would be mere intermediaries—deciding to whom to make loans. This would change the current roles of the Fed and commercial banks in a way that I argue has many benefits.
--Marshal Zeringue
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