Abstract This article focuses on the role of commercial banks as creators of money, and specifically on their rent extraction power in the form of seigniorage. The article examines how… Click to show full abstract
Abstract This article focuses on the role of commercial banks as creators of money, and specifically on their rent extraction power in the form of seigniorage. The article examines how the relative size of banks in the payment system combines with their capacity (and limits) to determine quantities and prices in the market for demand deposits, giving them the power to extract rents – seigniorage – from the economy, and clarifies the distinction between seigniorage from commercial bank money creation and profits from pure financial intermediation. The article studies how this form of seigniorage affects aggregate output, prices, and resource distribution, and draws political-economy and economic-policy implications.
               
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