Modelling Institutional Change in the Payments System and its Implications for Monetary Policy

Many institutional changes have taken place to payments systems. Indeed, they have been in continual change ever since money first emerged as the dominant technology for conducting transactions. Means of settlement between banks have changed: cheques replaced cash in many transactions, and they have in their turn been replaced partially (much more in some countries than others) by cards. Technology is even developing whereby mobile telephones can be used to effect instantaneous settlement of transactions. These have all affected the relationship between the quantity of money demanded and income. But none of the innovations has threatened to move us from a money-using society to one which transacts by some other means.