(p.200) Chapter Eight The Public-Private Partnership
(p.200) Chapter Eight The Public-Private Partnership
This chapter examines a public-private partnership (PPP) approach to money creation. Under this design, all monetary instruments are sovereign and default-free, and the state charges the banking system ongoing fees in return for its unconditional commitment to honor their monetary liabilities. The chapter shows that such a system does not compromise the state’s ability to accomplish its monetary objectives. In addition, unlike the alternative approaches from the previous two chapters, the PPP system has no private money and therefore is not susceptible to panics. The chapter analyzes the incentive problems that arise under such a system, and it suggests that a well-structured PPP system should mimic standard features of private financial arrangements. It argues that the PPP system compares favorably to the realistic alternatives, and that the desire for money-claimants to impose “market discipline” on banking firms is misguided. The chapter concludes with an analysis of the U.S. deposit insurance system, which can be understood as a rough form of PPP system. It makes the case that, despite some notable missteps, that system has been a remarkable policy success.
Keywords: public-private partnership, market discipline, deposit insurance
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