Abstract:
This paper divides money created by banking systems into two separate
components, corresponding to a classification of the services provided by
banking systems. The model of division into the amounts of intermediation and
pure liquidity creation has some implications that are different from those of
other models of the demand for money. In particular, the paper finds no
evidence of a strong or stable relationship between the demand for bank money
and income, and between the demand for money and interest rates. Further, it is
suggested that owned deposits arising from intermediation have greater
inflationary or anti-inflationary potential than borrowed deposits arising from
pure liquidity creation.
The views expressed in this publication are those of the authors and do not necessarily reflect the views of the BIS or its member central banks.