Monetary and banking economy

Over the past three or four decades, there has been a remarkable evolution in the institutions that make up the modern monetary system. The 2007-2009 financial crisis is a wake-up call that we need a similar evolution in the analytical apparatus and theories we use to understand this system. Produced and sponsored by the Institute for New Economic Thinking, this course is an attempt to begin the process of new economic thinking by reviving and updating some forgotten traditions of monetary thinking that have recently become relevant. Three features of the new system are fundamental. Most importantly, the intertwining of previously separate capital markets and money markets has produced a system with new dynamics and new vulnerabilities. The financial crisis laid these vulnerabilities bare for all to see. The result was two years of desperate innovation by central bank officials, who tried first this and then that in an effort to stem the collapse.

Second, the global character of the crisis revealed the global character of the system, which is something new in post-war history, but not at all new in a longer time perspective. Cooperation among central banks was critical to containing the collapse, and the details of this cooperation suggest the contours of an emerging new international monetary order.

Third, absolutely fundamental to the crisis was the operation of the main derivative contracts, mainly credit default swaps and foreign exchange swaps. Modern money cannot be understood separately from modern finance, nor can modern monetary theory be constructed separately from modern financial theory. That is why this course places brokers in both the capital and money markets at the center of the picture as for-profit market liquidity providers for the new market-based credit system.