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Credit Control by Reserve Assets

In: The Evolution of Creditary Structures and Controls

Author

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  • Geoffrey W. Gardiner

Abstract

THE BEST KNOWN ADVOCATE of the policy of the control of the money supply by government is Professor Milton Friedman.1 He does not favour the use of interest rates as the means to achieve control. The method he prefers is to insist that a fixed part of a bank’s assets be invested in a particular form of security whose supply should be firmly under the control of the government. This may be what economists term High Power Money, (HPM), that is the balances the banks keep at the Central Bank. Another choice of security for the purpose is Treasury Bills. They are a promise by the Treasury to pay a fixed sum of money three months (usually) from the date of issue. They are an excellent example of non-intermediated transferable debt. Because of their short maturity, it is very easy to alter the supply of the bills. The supply may also be regulated more directly by sales and purchases of the bills by government agencies.

Suggested Citation

  • Geoffrey W. Gardiner, 2006. "Credit Control by Reserve Assets," Palgrave Macmillan Books, in: The Evolution of Creditary Structures and Controls, chapter 5, pages 71-87, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-28844-7_5
    DOI: 10.1057/9780230288447_5
    as

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