Discussion — Lecture 13

This session covers Lecture 13: Chartallism, Metallism, and Key Currencies.

• Lecture 13 Notes

In the first half of the course, we focused on two prices of money: par and interest rates. With the next four lectures, we explore a third price of money: foreign exchange. This allows us to revisit fundamental questions about the nature of money. How can we understand the nature of money in the context of a global economy with many different currencies interacting with each other?

Note: Mehrling uses the term "forward interest parity" in this lecture to describe what he calls "covered interest parity" elsewhere, including lecture 8, and in the notes for this lecture. He usually uses "covered interest parity" to describe the relationship between interest rates and exchange rates, and "forward interest parity" in the context of forward rate agreements (FRAs) and the term structure of interest rates within a single currency.

This week's lecture examines the nature of monetary standards that serve as the bases for a domestic money-credit hierarchies. Chartalism holds that the monetary standard is imposed by the state, and that the value of the money comes from laws and other state-managed institutions. Metallism holds that the value of base money comes from the intrinsic value of the underlying metal, and that the market chooses its monetary standard based on the convenient properties of that metal. Which perspective is right? Both? Neither?

Money and Banking Summer 2023 Reddit Master Thread