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Intermediation and pure liquidity creation in banking systems

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  • William A Allen

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.

Suggested Citation

  • William A Allen, 1981. "Intermediation and pure liquidity creation in banking systems," BIS Working Papers 5, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:5
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    Cited by:

    1. William A Allen, 2012. "Government debt management and monetary policy in Britain since 1919," BIS Papers chapters, in: Bank for International Settlements (ed.), Threat of fiscal dominance?, volume 65, pages 15-50, Bank for International Settlements.

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