Title: A New Approach to Monetary Theory and Policy: A Monetary Theory of Value
Abstract: This paper seeks to establish whether the Malaysian ringgit, as fiat currency, satisfies the store of value function of money. Since the collapse of the gold standard, the migration of the medium of exchange from commodity standard to fiat money backed by debt, has not only resulted in significant decay in intrinsic value but also involves transfer of wealth. This necessarily requires re-appraisal of modern monetary theories that have influenced policy makers, but also explains the effect of such policies through analysis of macroeconomic variables on price stability. This paper presents an alternative monetary policy, which targets the stable value of currency to generate price stability over the long term and hence sustain economic growth. Monetary economics deals with both monetary and answering what causes fluctuations in output and financial stability at the macro and micro level. At macro employment (7). Moreover, modeled outcomes and level, it deals with shifts in the supply and demand of recommendations have not accurately addressed price money that affect output and employment, imports and instability and financial crises, since economists, as exports, exchange rates and the balance of payments and group, mistook beauty, clad in impressive-looking examines to what extent changes in money supply, prices mathematics, for truth (8). Mainstream monetary and (inflation) and interest rates affect national output, economic theories that were developed since the 1930s, in employment and hence economic growth and particular by Keynes and Friedman (which central banks development. At micro level, it deals with the supply adopted), although differing on their methodology in and demand of money and their equilibrium and the terms of monetary policy, promised monetary and behaviour of central and commercial banks in determining financial stability, through managing the supply of money supply and interest rates (1). The role that money money, either by interest rates (Keynes) or by the and capital, or financial deepening, have on economic quantity of money (Friedman), but in either case they development has been well documented by Friedman (2), have not succeeded. This paper therefore recommends Tobin (3), McKinnon (4) and Shaw (5). The rather astute different approach in monetary theory and policy that observation of Tobin deserves attention, for he remarked recommends monetary authorities to adopt monetary that, a society's money is necessarily store of value. theory of value that instead of targeting interest rates, the Otherwise it could not be an acceptable means of quantity of money or even inflation, they should instead payment (6). Therefore, this paper presents theoretical target stable value of money, such that prices would and empirical investigation as to the loss in the value of remain low and stable. money and any associated economic impact and thus Interest is the mechanism that treats money as the primarily addresses the macro aspect of monetary object, as commodity that must come at price, rental economics and in turn mainstream macroeconomics. charge, which compensates the capital provider for the macroeconomics is in disarray for not accurately
Publication Year: 2014
Publication Date: 2014-02-01
Language: en
Type: article
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Cited By Count: 4
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