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Do Central Banks’ repo Transactions and Liquidity Infusions Increase Financial Stability Risks? A Case for Circular Monetary Economics

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  • Henri Kouam

    (Fellow in Economics, Nkafu Policy Institute)

Abstract

Central banks repo market operations and liquidity infusions occasion a structural liquidity mismatch in bank balance sheets and increase the dependence on central bank liquidity. This paper argues for what I term “Circular Monetary Economics†, an approach to monetary policy that seeks to green and prudentially insulate the design and implementation of liquidity and credit facilities. Circular monetary economics will lessen the probability of cross-asset contamination within financial institutions and contagion within the broader financial system, whilst simultaneously improving the transmissions from changes in the policy rate as well as macro-prudential regimes in the event of a climate or credit-driven financial shock.

Suggested Citation

  • Henri Kouam, 2020. "Do Central Banks’ repo Transactions and Liquidity Infusions Increase Financial Stability Risks? A Case for Circular Monetary Economics," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 4(7), pages 377-386, July.
    • Handle: RePEc:bcp:journl:v:4:y:2020:i:7:p:377-386
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