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Powers of the Central Bank in the context of the liquidity preference theory of J.M. Keynes

Gogokhiya D.Sh. Institute of Economics of RAS, Moscow, Russian Federation ( gogohia.dorik@yandex.ru )

Journal: Finance and Credit, #9, 2018

Subject This article considers the powers of the Central Bank, their justification and the shortcomings of this justification.
Objectives The article aims to discuss the expansion of the powers of the Central Bank not as a lender only, but also as a borrower of last resort.
Methods For the study, I used the historical-logical and functional methods. These methods helped J.M. Keynes develop a macroeconomic theory of liquidity preference and refine the theory of interest and money demand. I also used the methods of comparative economic analysis to study the theoretical constructions of Keynes.
Results The article identifies the grounds that allow to differentiate the demand for money as a store of value and demand for money as a medium of payment for production resources and other capital assets. The article says that the liquidity preference theory by J.M. Keynes, as it is formulated in The General Theory of Employment, Interest and Money, Chapter 17, gives the basic guidelines for search of such bases and accordingly, ways of improvement of the modern monetary system as a central bank system with deposit fractional-reserve banking.
Conclusions and Relevance The analysis reveals specific features of supply and demand in the money market and the potential of the Central Bank to provide through a differentiated interest policy the unconditional safety of the value of monetary assets. The results obtained can be used for discussion and choice of monetary policy options.


Authority of the Central Bank of Russia from Perspectives of Keynes's Liquidity Preference Theory

Gogokhiya D.Sh. Institute of Economics of Russian Academy of Sciences, Moscow, Russian Federation ( gogohia.dorik@yandex.ru )

Journal: Digest Finance, #4, 2018

Subject The article discusses and substantiates the authority of the Central Bank of Russia and points out drawbacks of such rationale.
Objectives The research provides the rationale for expanding the authority of the Central Bank of Russia not only as a creditor, but also as a borrower of last resort.
Methods The research involves the historical-logic and functional methods, methods of comparative economic analysis.
Results I found aspects to separate the demand for money as a means of savings and means of payment for productive resources and other capital assets. The article demonstrates that Keynes's liquidity preference theory, as put in The General Theory of Employment, Interest and Money, highlights the main guidelines for such aspects and ways to improve the existing monetary system as a central banking mechanism with fractional reserve of deposits.
Conclusions and Relevance As a result of the analysis, I identify specifics in the demand and supply in the monetary market and potential opportunities of the Central Bank of Russia to maintain the policy of differentiated interest rates and subsequently ensure the safety of monetary assets. The banking community has to admit that specific banking risks associated with the identification of rather reliable borrowers cannot be transferred to other financial institutions without affecting the quality of such risks management. The findings can be used to discuss and choose options of the monetary policy.


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