Because it's Sunday.
"Green" money has positive value; "red" money has negative value. (An overdraft in your chequing account is red money.) We live in a red/green world with both types of money, so we ought to start thinking about money supply and demand in a red/green world. The red/green world is the real world.
For simplicity, consolidate commercial banks and central bank into One Big Bank.
In the green world, the bank issues green bits of paper worth plus $1 each. If you buy $10 worth of apples, the buyer must give the seller 10 green bits of paper.
It doesn't make any difference if people keep their green bits of paper in a cardboard box at the bank, instead of in their pockets. It doesn't make any difference if the bits of paper and cardboard boxes disappear, if the bank keeps a record in a ledger.
In the red world, the bank issues red bits of paper worth minus $1 each. If you sell $10 worth of apples, the seller must give the buyer 10 red bits of paper.
It doesn't make any difference if people keep their red bits of paper in a cardboard box at the bank, instead of in their pockets. It doesn't make any difference if the bits of paper and cardboard boxes disappear, if the bank keeps a record in a ledger.
There is a symmetry between the green world and the red world. Both worlds have a Cash-In-Advance constraint. In the green world the buyer of goods must have green cash to give to the seller; in the red world the seller of goods must have red cash to give to the buyer. But there is also an asymmetry: in the red world the bank must impose collateral constraints to put a limit on how many red notes an individual can hold, otherwise an individual would want to accumulate an unlimited number of red notes, and die holding more red notes than his wealth.
The red/green world is a composite world where both red and green notes are used as money.
The bank ensures that one red note is always worth exactly minus one green note, in exactly the same way that banks ensure that one $20 note is always worth exactly two $10 notes. The bank will freely swap one green note plus one red note for nothing, and vice versa. Just as banks will freely swap one $20 note for two $10 notes, and vice versa.
Define the "gross" money stock as the number of green notes plus the number of red notes. Define the "net" money stock as the number of green notes minus the number of red notes.
The bank has four monetary policy instruments:
- Open Market Operations. If the bank buys $100 worth of bonds (or buys $100 worth of anything), this increases the net money stock by $100.
- Collateral requirements. If the bank tightens collateral requirements, and if those are binding constraints, this will reduce the gross money stock but not the net money stock.
- The green interest rate (which may be positive or negative) it pays on holdings of green notes. Increasing the green interest rate increases the demand to hold green notes.
- The red interest rate (which may be positive or negative) it charges on holdings of red notes. Increasing the red interest rate reduces the demand to hold red notes.
The red interest rate cannot be below the green interest rate, or the bank would create arbitrage opportunities. The red-green interest rate spread cannot fall below zero. If you like, we could replace the fourth monetary policy instrument (the red interest rate) with the red-green spread.
The demand for gross money will be an increasing function of the volume of transactions and will be proportional to the price level. It will be a decreasing function of the degree of synchronisation of payments and receipts, and it is costly to synchronise your payments and receipts. Standard Quantity-Theoretic stuff.
The demand for net money will be an increasing function of both red and green interest rates. The demand for gross money will be a decreasing function of the spread between red and green interest rates.
In a representative agent model, where payments and receipts of money are perfectly synchronised by assumption (if I buy $100 worth of goods from others, then others buy exactly $100 worth of goods from me at exactly the same time) the demand for gross money will always be zero. (In Michael Woodford's "cashless" representative agent model, the demand for gross money is always zero, and the central bank ensures the supply of net money is always zero, and sets the spread between red and green interest rates at zero.)
The bank controls the net money supply via open market operations, and controls the net money demand via red and green interest rates. An open market purchase increases the net money supply, and an increase in red and green interest rates raises the net money demand. So the bank can use open market operations and interest rates at the same time in an offsetting way without affecting the excess demand for net money.
If collateral constraints are non-binding, the bank controls the net money stock, but individuals determine the gross money stock. Any individual can go to the bank and ask to be given one green note and one red note. The only way the bank can reduce the gross money stock is by tightening collateral requirements, or by increasing the spread between red and green interest rates. With zero spread, and non-binding collateral constraints, individuals are satiated in gross money, but may or may not be satiated in net money.
I think that's right.
Worthwhile Canadian Initiative 
The ventral banker has one more option for its operations. It can leave rate and term unknown until the ratio of red to green becomes out of balance, at which time the ratio is re-balanced by subtracting green from accounts to pay off reds. In this scenario, the rate and term is discovered ex-post. Member banks only know their true rates and terms after the rebalance.
Something has to be discovered by the central banker, and the simplest variables to discover are rate and term. What is an imbalance? You decide, what is your economic model? There is no absolute determination that the short term, except in agricultural economies.
But ultimately one has to pick an economic model, otherwise the definition of imbalance is discretionary, and risk is not uniformly observed. Why would central banks know he true interest rate apriori? Member banks still have to operate from their estimation of the natural rate, which is unknown until discovered.
Do I get a tax deduction if I donate my red notes to charity ? ‘Cuz that’s all I got , is red notes. Lots.
“If collateral constraints are non-binding, the bank controls the net money stock, but individuals determine the gross money stock. Any individual can go to the bank and ask to be given one green note and one red note.”
I think these green/red posts are really interesting. And quite relevant as it seems to me that our economies are going towards something like this. Credit cards and likes IMO can be already viewed as red money and financial markets often times allows negative balances which are collateralized.
Anyway I had a question. Can we say anything on monetary transmission given green/red money world and if collateral constraints are not binding? Can the central bank target NGDP/inflation and should it use interest rates or manipulate net money stock?
From an individual’s perspective, it is useful to identify two important measures here. Ones is simply their net position, which represents their wealth. The second is the sum of their green money and their unused borrowing capacity. Here, we might think of this latter measure as representing their liquidity.
If there are no collateral constraints, the demand for money will be driven by the demand for wealth. Of course, there may be fluctuations because payments are not neatly co-ordinated, but this is an more an ex-post outcome, than it is a reflection of ex-ante demand.
As we start to tighten collateral requirements, people start needing to hold green money, not simply due to their demand for wealth, but also to allow them to make all the payments they want. If there is no scope to borrow, people have to hold a stock of green money to cover any possible temporary shortfall between payments and receipts. Technically, the reduced borrowing capacity reduces the possible future time-paths of the individual’s net money position, which changes the individual’s optimal decision in the face of uncertainty over the future.
In an extended model, we would need to consider the difference between committed and uncommitted borrowing capacity as we would between sight and term green money. But this type of framework is very useful for thinking about some of the things that were happening at the peak of the financial crisis.
Matt: I didn’t follow that.
Marko: No! You get a tax deduction if you take away a charity’s red notes.
Jussi: thanks. I don’t think this post says anything about whether the Bank should target inflation, or NGDP, or whatever. But if it wanted to loosen monetary policy it could either cut the red and green interest rates, or increase the net money supply.
Nick E: I’m still thinking this through, but I think “unused borrowing capacity” is the wrong word here. We should instead say “unused capacity to hold red money”. Some financial liabilities are money, but most are not.
Similarly, an individual’s net money is only a small part of his wealth.
In the red world, for example, liquidity is the stock of red money. Because you cannot sell goods unless you have red money. But if the potential buyer of goods has a binding collateral constraint, and so cannot accept more red money, then he cannot buy goods. So you don’t get an exchange unless the seller has red money and the buyer can accept more red money.
How does the liquidity characteristic of the bank’s net position in non-money figure into the analysis?
JKH: if net money is positive, and so is a net liability of the bank, the bank has assets on the other side of its balance sheet. Those assets are not money, but may be more liquid or less liquid. Does it matter? Probably, because the more liquid the assets the bank holds, the less liquid the assets the non-bank public holds, which would presumably increase the demand for gross money.
But I’m still struggling to get my head around red and green money, so can’t think about that complication.
Nick: “4. The red interest rate”
I think there cannot be uniform interest on red money. The interest needs always reflect the creditworthiness (or collateral pool attached) of the agent holding the red money. Any consumption by receiving red money means lower credit.
“But if it wanted to loosen monetary policy it could either cut the red and green interest rates, or increase the net money supply.”
I see. I wasn’t sure if you were thinking that the transmission channels are intact after having red money involved.
Does the increase in net money supply help in similar fashion that in green money world? I’m asking because that would mean holding more assets in the central bank’s balance sheet – that reduces red money collateral pool and thus the amount of (potential) red money – as first iteration I would say it is a wash? Yet I see even the current system will utilize collateral – asset buying will probably mean, considering collateral channel only, less loans (and less deposit money) even in the current system.
“The demand for net money will be an increasing function of both red and green interest rates.”
How might this relate to basic liquidity preference theory in the case of a single interest rate?
“………But there is also an asymmetry: in the red world the bank must impose collateral constraints………..”
I think this green-red model is incomplete due to the weak development of the strong link between red currency and collateral.
Lacking a strong tie between red currency and collateral, you write “The bank will freely swap one green note plus one red note for nothing, and vice versa.” This implies that an actor can freely walk to the bank and obtain both red and green money, which is noticeably out-of-step with the real world.
In the real economy, red and green money would only be issued by the bank if the customer first provided collateral which the bank could tie to the red type of money. This collateral link to red money is preserved until the red money is finally combined with green and turned into “nothing”. The destruction of both green and red money types would leave un-linked collateral still existing in the real economy.
JKH: Simple liquidity preference (money demand) theory assumes that “money” is like currency and pays 0% interest. So “the” interest rate in that theory is the rate of interest paid on non-money assets. The higher that interest rate, the greater the opportunity cost of holding money, and the lower the quantity of money demanded.
If we generalise that theory, to allow money to pay interest, then the opportunity cost of holding money is the spread between the non-money rate of interest minus the rate of interest paid on money.
So what I said was compatible with standard money demand theory. Just I’m talking about a different interest rate, which is why you get the opposite effect.
Jussi: “I think there cannot be uniform interest on red money. The interest needs always reflect the creditworthiness (or collateral pool attached) of the agent holding the red money.”
Sounds right to me. But I’m going to ignore it, for simplicity. 😉
“Does the increase in net money supply help in similar fashion that in green money world?”
In the green money world, net money and gross money are the same thing, so it’s simpler. In the red/green world, an increase in net money will only increase gross money if collateral constraints are binding (I think). The green money world is like the limiting case of a red/green world in which haircuts approach 100%.
Roger: “In the real economy, red and green money would only be issued by the bank if the customer first provided collateral which the bank could tie to the red type of money.”
That is true in my red/green world too. You are limited in how much red money you are allowed to hold, regardless of where you get it from.
“This collateral link to red money is preserved until the red money is finally combined with green and turned into “nothing”.”
You lost me.
Nick,
“You are limited in how much red money you are allowed to hold…….”
There may be some confusion about WHO holds the red money. In the real world, there is no limit upon the maximum amount of red money that could be held. The customer will not hold red money; instead, the bank or seller will hold the red money and the customer will retain possession of the collateral.
The limit on amount of red money that each customer is allowed to create (in cooperation with a bank or seller) is related to the amount of collateral owned by each customer.
I think one missing step here is why both red and green money should circulate in this world.
At 7:15AM, you note that red money is a constraint on the sale of goods. But that’s only true in a red-money-only world; in a green-money-only world a merchant would accept green money for the goods and we’d be done. In our mixed world, the merchant has both options.
I think we address this problem via financial intermediaries. The spontaneous creation of one red and one green money is only a problem because of default risk, but for a merchant who intends to immediately give that red money away with a purchase there is no default risk. The risk properly lies with the consumer — but that’s just where merchant banks come in.
In our red-and-green world, a merchant who accepts cash and credit cards is indifferent to two options:
) They accept green money in exchange for goods, or
*) The customer swipes a piece of plastic, and a merchant bank creates red and green money in equal amounts. The consumer receives the red money and the goods, and the merchant receives the green money (less processing fees).
In both cases, the merchant’s books look just like they’re a green-money-only shop. The credit card payment fees cover the aggregate risk of default (since merchants are insulated from an individual customer’s default risk), and if we assume that collateral constraints are effective this would be near-0% and only a convenience fee that we can neglect.
The red-green interest rate spread determines when the *customer chooses to use red or green money for the transaction; the merchant does not make that choice. Collateral requirements determine which customers have the option to use red money and which must use only green money.
These are not independent monetary policies. In fact, your four variables reduce to three:
* Seigniorage Revenue: The Central Bank determines how much seigniorage revenue it wishes to generate, in terms of incoming revenue (from collateral, net interest on money). If we don’t bring in a fiscal authority to receive a surplus / make up a shortfall, positive seigniorage revenue contracts the money supply and negative revenue expands it.
* Open Market Operations and the Green Interest Rate: Together, these determine the time-structure of the money supply. With a fixed target of seigniorage, an open market operation results in the CB purchasing an asset who’s returns must be disbursed as interest on green money. If the central bank holds only nominal assets, then this interest is “interest on money” in the Neo-Fischerian sense which expands the money supply. If the central bank holds only real assets, then things are a lot more confusing because a green dollar would pay (ultimately) interest in milk or housing rent or Twinkies.
* Collateral and the Red/Green Interest Rate Spread: If the Central Bank took anything as collateral, conducted no open market operations, and targeted zero seigniorage revenue, then the red/green spread would be governed precisely by the collective default risk on that collateral. Conversely, if the Central Bank set a fixed red/green spread under the same zero-seigniorage condition, then the quality of collateral would be tightly-constrained by that interest rate. If the central bank accepts real assets as collateral, this also brings the inflation rate into the picture.
The Bank of Canada — dealing in reserves — seems to work by targeting low seigniorage revenue and a fixed red/green spread (bank rate minus deposit rate), using open market operations and the green interest rate as its primary policy lever.
The aggregate banking system still targets low seigniorage revenue (private banks can’t collect seigniorage, the central bank’s target is set by policy), fixes the green money rate (cash pays zero interest, chequeing accounts pay very low interest rates), and adjusts the red/green spread (0% cash less financing cost on unsecured loans) and rate of return on the banks’ capital in tandem.
Majro: “I think one missing step here is why both red and green money should circulate in this world.”
Suppose the bank sets net money at zero (which it can easily do, via OMO). Then unless we have both red and green money, there will be no money at all.
“In the red world, for example, liquidity is the stock of red money.”
I don’t think you should worry about the red world. The real world, as you say, is a world of red and green money. Sometimes thinking about a world of green money is OK, as a simplification of the real world. But a world of red money alone is not a good approximation of the real world.
Nick E: True, but thinking about the red world helps me think more clearly about the red/green world.
Nick,
Some of our movies of the old west contain a good example of the creation (delivery) of red money: The character comes into a bar, orders a drink, and says “Put it on my tab.”.
If the barkeeper agrees, the customer gets his drink and the bar adds a line to the customers tab. The bar is keeping the customers red money on deposit at the bar. The customer is delivering red money to the bar each time a drink is ordered.
Occasionally, the customer is refused. The barkeeper claims the tab is too long (the customer owns too much red money). You seldom hear this expression of a red money limitation in a modern western.
@Nick:
(First, I realize now that I misread your comment from earlier this morning, where you were talking about red circulation in a red-only world; I mistook it as the red-green world.)
‘So the bank can use open market operations and interest rates at the same time in an offsetting way without affecting the excess demand for net money.’
I’m not fully getting this statement.
Suppose that people hold their non-money wealth in the form of assets that can be rented out so that they have an interest rate equivalent to rent / value. The interest rates on red and green money will have to be aligned with the interest on these non-money assets or arbitrage opportunities will exists that will cause non-money asset price to change, which will in turn cause the demand for money to change.
So if the bank wants to not affect the excess demand for net money won’t it have have to set the red/green rate at a level that hold asset prices steady, and then use OMO to keep the money supply at just the right level to meet people’s demand for it at those interest rates?
“Open Market Operations. If the bank buys $100 worth of bonds (or buys $100 worth of anything), this increases the net money stock by $100.”
Isn’t this different from typical, if not universal practice today? Don’t CBs keep their books balanced, so that the net money stock is unaffected by their open market operations? That’s why some people worry about a CB’s balance sheet, right?
I mean, net money stock as defined in your metaphor. 🙂
Roger: If you give me a drink, and I give you my IOU for $5, that IOU is not money. It’s just an IOU. But if you then use my IOU to buy apples, and the apple seller uses it to buy fertiliser, and it circulates around the town, then my IOU is money, and I have created money.
I don’t get the point of this exercise. So instead of debit/credit we say red/green? So what? Instead of a ledger you use red notes to represent one side and green for the other? Again, what’s the point? What is revealed by this relabelling of existing constructs? Or is this so clever its over my head?
or positive and negative
MF: currency pays 0% nominal. Bonds (usually) pay positive nominal rates. Does this create an arbitrage opportunity? No. (But it does create an incentive for banks to create money).
Min: take the green money world. The bank has money on the liability side of its balance sheet and non-money assets (“bonds”) on the asset side. An Open Market Purchase of $100 worth of bonds increases both sides of the balance sheet by $100. Green money (which equals net money if there is no red) increases by $100. Standard story.
why not use….is totally missing it (and is not alone). Not all financial assets and liabilities are money. When he starts talking about “debit” and “credit”, you know he is missing the point.
Lol. So it’s really clever. What does color coding positive and negative money balances reveal? Which part didn’t I get?
Congratulations on being the first to color code positive and negative.
Nick Rowe: “Min: take the green money world. The bank has money on the liability side of its balance sheet and non-money assets (“bonds”) on the asset side. An Open Market Purchase of $100 worth of bonds increases both sides of the balance sheet by $100. Green money (which equals net money if there is no red) increases by $100. Standard story.”
But what about the balance sheet before buying the bonds? If the bank already has the green money it will use to buy the bonds, then buying the bonds does not alter the net amount of money. It only does so when the bank creates green money in order to buy the bonds without at the same time creating red money to keep the net amount of money the same. Is is standard for the CB to create money for its own use without balancing its books?
debit
NOUN
an entry recording an amount owed, listed on the left-hand side or column of an account. The opposite of credit.
VERB
(be debited)
(of a bank or other financial organization) remove (an amount of money) from a customer’s account, typically as payment for services or goods.
How is your red and green money different?
Are you suggesting that if we used debits and credits instead of red and green your post would make no sense?
“Credit” money has positive value; “debit” money has negative value. (An overdraft in your chequing account is a debit.) We live in a debit/credit world with both types of money, so we ought to start thinking about money supply and demand in a debit/credit world. The debit/credit world is the real world.
or
“Positive” money has positive value; “negative” money has negative value. (An overdraft in your chequing account is negative money.) We live in a negative/positive world with both types of money, so we ought to start thinking about money supply and demand in a negative/positive world. The negative/positive world is the real world.
Sorry, Nick, I shifted back to your metaphor.
Nick Rowe: “An Open Market Purchase of $100 worth of bonds increases both sides of the balance sheet by $100. Green money (which equals net money if there is no red) increases by $100.”
Are you saying that the (green) money created by the CB to buy the bonds remains with the bank? Doesn’t it got to the seller of the bonds?
OC, since we have a unified bank, the green money is presumably in the bank, but isn’t it in the seller’s account, not the bank’s account? If there is nothing in the bank’s account to represent its liability, then the bank has on its face gotten richer by the amount of the purchased bonds. The bank’s books after the purchase are out of balance with the books before the purchase. Is that SOP?
why not…Google “medium of exchange”.
And stop commenting here. You are trolling, and wasting my time.
Min: The bank prints green money, and when it uses it to buy bonds, of course it goes to the seller of the bonds. This is very standard stuff.
“currency pays 0% nominal. Bonds (usually) pay positive nominal rates. Does this create an arbitrage opportunity? No. (But it does create an incentive for banks to create money).”
Well, if people want to hold 0% money then banks can make a profit by creating this money and buying interest-bearing assets with it.
But I understood your statement from the post to mean that the bank in your model can satisfy the demand for money either by adjusting the money supply via OMO, or by adjusting the interest rates it pays/charges on greed/red money or by a combination of the 2. My point was that for a given policy goal (say a stable price level) then there is only 1 interest rate (the one that equilibriates the rate paid on money, with that earned on non-money assets) consistent with that policy. Any other interest rates will lead to a change in the price level. And there will only be one level of money supply that matches money demand at that interest rate.
Oh, I think I see where my thinking was wrong.
If you pay people interest on currency, then you will be able to vary either the money supply or the interest paid on currency to achieve similar results in terms of the price level. I was thinking of interest rates as something you get for lending out the currency you hold, but that is not true in your model.
MF: you’ve got it.
OK, I have studied a bit, and I think that I understand a bit better. With a unified bank, there are no reserves, so when the bank buys a bond, it puts newly created (green) money in the seller’s bank account, which is the bank’s liability and balances the asset of the bond.
So in your metaphor some, but not all bank liabilities are green money and some, but not all bank assets are red money. So far the only real life bank asset that you have identified as red money is overdrafts. I suppose that there are others. What are they? Are all bank loans red money? Thanks.
Having thinking about this more:
I can see there is a case where a transaction happens in red/green but not in green only world. But can there be a case where red/green makes the transaction without need for additional (buyer’s) collateral? If not doesn’t that mean a bank has to be involved to make the credit analysis (a merchant cannot do it and only bank can issue paired red/green notes). Can red money be genuine medium of exchange?
This seems to be, at the operational level, the same as in green-only world where a bank is also needed for credit analysis. The only difference now is that bank books a loan, not red money assets (customer’s liability) on its books. Both needs the same collateral arrangement. But the credit rationing/analysis and the process itself, apart of the instruments is the same. Then does red money actually help the economy as medium of exchange? Or is the difference only that red/green world has an additional uniform liability type (central banks’s asset) that is functionally the same as a bank loan but has different characteristics. Loans are priced against credit but red money’s price is set by the central bank.
Min: First paragraph: you have got it. (But remember that regular commercial banks don’t hold 100% reserves either, so they are not very different.)
Second paragraph: you have nearly got it. We can imagine a red/green bank with zero net money, where the only asset is red money and the only liability is green money. If net money > 0, then the bank must hold some non-money assets, which are non-money IOUs signed by someone other than the bank (e.g. govt bonds, mortgages). If net money < 0, the bank must have some non-money liabilities, which are IOUs signed by the bank (banks issue bonds).
Jussi: You lost me.
Strictly, we don’t need banks at all. Red money is garbage, which people don’t like holding, but can’t be thrown away. All garbage is the same, so it works well as money. “If I give you 10 apples, will you take 1 kg of my garbage in exchange?”
Something that is workable at the margin should be examined in the limit.
How is money created in the pure red money world?
Or – what is the pure red money version of “loans create deposits” ?
(MMT headstands permissible if fully collaterized with clear thoughts)
🙂
Nick: “Jussi: You lost me.”
JKH: “How is money created in the pure red money world?”
I second that.
“Strictly, we don’t need banks at all. Red money is garbage, which people don’t like holding, but can’t be thrown away. All garbage is the same, so it works well as money. “If I give you 10 apples, will you take 1 kg of my garbage in exchange?””
Yes, that works but only if you have some amount of standardized (in value sense) packages of garbage. But there is no such thing lying around. And it is not good enough that the central bank issues red notes as the notes need the collateral to support them – otherwise they are not standard and uniformly priced. And collateral needs to be repriced everytime the red note changes hands.
As you said otherwise people will create garbage and “die holding more red notes than his wealth.” How do you limit garbage to concentrate to people who doesn’t have wealth to match the garbage without credit rationing (and thus banks)?
JKH: “How is money created in the pure red money world?”
Good question.
My initial thought was that it was bits of paper that were convertible on supply into garbage! (You hold a red note, you must accept my garbage if I ask you to.) But they could equally be an obligation to pay gold to a bank.
I have some assets. I give you my assets, plus some red notes of equal value. If those red notes circulate as money, I am a red bank.
In the green world, you have some assets, and you give me your assets, and I give you some green notes of equal value.
Does that sound right?
JKH: maybe this is better/clearer:
Green world: Adam signs an IOU promising to pay the bank 100 green notes, and the bank gives Adam 100 green notes. Adam now uses the 100 green notes to buy a house.
Red world: The bank signs an IOU promising to accept 100 red notes from Adam, and the bank gives Adam 100 red notes. Adam now uses the 100 red notes to sell a house.
God it’s weird.
An even weirder thought (which must be/I hope is wrong): start with a green world. What prevents it suddenly becoming a red world? Are there two sunspot equilibria? Could green money suddenly change colour to red? So positively-valued money suddenly becomes negatively-valued, simply because everyone expects it to become negatively-valued?
But there’s an asymmetry here between the red and green worlds. The reason why banks exist is that everyone trusts the Bank’s signature, but nobody trusts Adam’s signature (except the bank, which has done research on Adam).
Nick,
You wrote “………. in the red world the seller of goods must have red cash to give to the buyer…………..”
In the real world, sometimes a home owner with debt-owing-on-the-home will sell the home and debt to a new buyer. Is this equivalent to the red world transaction referenced in the quote?
“I have some assets. I give you my assets, plus some red notes of equal value. If those red notes circulate as money, I am a red bank.”
IMO would do but is too kind to me as I will sell those red notes to someone without assets and dying soon. I’m sure someone poor and old is happy to get some assets and die with hefty stack of red notes.
“How is money created in the pure red money world?”
Its easy to see how IOU’s (that are held by the lender) can become green money. Isn’t it also possible that invoices issued by the lender can become red money?
I agree to sell you 100 apples and give you an invoice to be paid in the future. You can either return the 100 apples plus interest in the future, or you sell something you own to someone who agree to accept the invoice in exchange. Isn’t the invoice red money ? Whenever a debt is created isn’t there always a potential for both green money (the IOU) and red money (the debt contract) to be created and to circulate ?
And couldn’t a CB create red money by OMO. It finds people who are prepared to accept a share in a govt-owned asset plus some red notes with negative interest which start to circulate and we’re in a red world.
MF: How do you ensure that people won’t die without assets and with some (then defaulted) red notes?