Money, Negotiable Debt, and Settlement
Money, Negotiable Debt, and Settlement
This chapter considers policy responses if settlement frictions have adverse implications for the economy. In this study, fiat money plays a dual role: as a medium of exchange to facilitate trade, and as an instrument to settle debt. Introduced into the process are frictions in the settlement of private debt that give rise to negotiable debt. This analysis addresses mainly the issue of liquidity, where the one who will make settlements or payments may not have sufficient liquidity on hand. The chapter presents policy recommendations when the market for negotiable debt fails to overcome the settlement frictions, causing liquidity problems to spill over into credit and product markets.
Keywords: settlement frictions, policy responses, frictions, fiat money, settlement of private debt, liquidity, negotiable debt
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