Financial stability and money creation

Abstract

Should money issuance be a licensed privilege, and if so, who should issue money? Morgan Ricks argues that free-wheeling money issuance by non-licensed shadow banks was a major factor behind the global financial crisis. Still, the regulatory reform agenda after the crisis has mostly been directed at banks (with a few exceptions). This has led to an enormously complex body of regulations that threatens to bring traditional banking to its knees. Ricks would instead restore money issuance as a privilege and leave other financial institutions with a lighter regulatory regime. He is not, however, in favor of narrow banking – as favored by Irving Fisher – but would leave credit allocation with the private banking sector. In this way his proposals are both radical and conservative. He brings a refreshing look to the regulatory debate, and the book is full of novel insights. His discussion of banks and deposit regulations should be required reading for all bank regulators, although his proposal may fall on barren ground in the current political environment. Nevertheless, the book should serve both as a primer for future monetary reform proposals, but also as a starting point for a pragmatic bipartisan debate about financial reform today.