Berlin 2012 – scientific programme

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SOE: Fachverband Physik sozio-ökonomischer Systeme

SOE 2: Financial Markets and Risk Management I

SOE 2.3: Talk

Monday, March 26, 2012, 10:15–10:30, H 0110

A time-homogeneous credit mechanism using money and anti-money — •Andreas Schacker and Dieter Braun — Faculty of Physics, LMU Munich

The appearance of monetary crises throughout human history and their interplay with the real economy have puzzled generations of economists. There are many schools of thought on as to what are the actual causes of such crises and how monetary policy can try to avert them. The growing application of tools from statistical physics promises to provide new insight into monetary and creditary dynamics. In particular, it has been suggested that creation of credit money might itself be a source of financial instability.

We show that bank lending via current creditary mechanisms creates non-local purchasing power transfers adversely affecting non-involved asset holders, which might lead to increasing price levels. Starting from this observation, we construct a bi-currency system of non-bank assets ('money') and bank assets ('anti-money') in which a payment can either be made by passing on money or by receiving anti-money. Motivated by an analogy to physics, we impose the symmetry of time homogeneity on the system. This leads to a constant money supply per market participant and prohibits non-local transfers of purchasing power. The issue of credit crunches commonly associated with a constant money supply is overcome by introducing a novel mechanism of liquidity transfer that relies on a free floating exchange rate between non-bank assets and bank assets.