Stability of a time-homogeneous system of money and antimoney in an agent-based random economy

Stein, Julian Alexander Cornelius and Braun, Dieter (2019): Stability of a time-homogeneous system of money and antimoney in an agent-based random economy. In: Physica A-Statistical Mechanics and Its Applications, Vol. 520: pp. 232-249

Abstract

Financial crises appear throughout human history. In particular, the financial crisis of 2008 highlighted the role of uncontrolled creation of money through lending as a source of financial instability. The creation of money is also problematic due to the implicit non-local transfers of wealth (Cantillon effect) and a leak of the economic memory of past transactions. Motivated by an analogy to particle physics, time-homogeneity can be imposed on monetary systems to approach and even possibly solve the associated problems. This implies a full reserve banking with a two-currency system which discriminates with an exchange rate between non-bank assets (money) and bank assets (antimoney). The associated liabilities are in the hands of banks and non-banks, respectively. Payments are either made by passing on money or receiving antimoney at respective price levels. Liquidity is provided by the simultaneous transfer of money and antimoney at a negotiated exchange rate between money and antimoney, also termed the liquidity price. In this system, interest rates and credit creation are replaced by a varying price for liquidity. We started to study the economic stability of such a system with an agent-based random economy model, in which households and firms are urged by random boundary conditions to apply stochastic exchanges of goods via a limit order book mechanism, implementing the trading scheme of stock markets. We compared the market simulations under the prevailing monetary system with the money-antimoney system and found that a symmetric price equilibrium was obtained by imposing a limit on the agents' antimoney holdings. This is the equivalent of controlling lending in a money system. For both money and antimoney, quantity theory is satisfied. Production and credit shocks showed a quantitative and qualitative similar behavior for the different monetary systems, indicating the overall functionality of the proposed money-antimoney system. (C) 2019 Published by Elsevier B.V.

• Item Type: Journal article
• Faculties: Physics
• Subjects: 500 Science > 530 Physics
• ISSN: 0378-4371
• Language: English