Re-imagining Money and Banking : A New Monetarist Approach

This paper uses the framework created by Gu, Mattesini, Monnet, and Wright (2013) to present a very old, but forgotten, model of banking. The mechanism design approach of GMMW is used to demonstrate that in an environment with anonymous agents, liquidity frictions, and positive discount factors, the introduction of a paid account-keeper – or bank – improves welfare by making it possible for non-banks to monetize the value of the weight that they put on the future. A crucial aspect of this model of banking is that the payments system is based on unsecured credit, not on collateralized obligations