Our Economics Focus of January 22nd discussed a recent paper by Harvard's Benjamin Friedman, which argued that technology in the form of e-money might render central banks obsolete. At a conference this month in Washington, DC, organised by the World Bank, the IMF and International Finance, several economists examined Mr Friedman's much-discussed idea and declared it wrong. Mr Friedman's argument went roughly as follows. Central banks can control short-term interest rates because they are monopoly suppliers of "base money"—currency, plus deposits by banks at the central bank. Suppose that technology eliminates both kinds of base money. In such a world the central bank would no longer have the fulcrum it currently uses to change interest rates.
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