Get access

The Failure of Woodford's Model of the Channel System in the Cashless Economy



Woodford claims to present a cashless and frictionless model of the channel system of interest rate control. This note explains why Woodford's frictionless model omits an essential feature of channel systems: the need for clearing e-cash balances at the central bank. Without the existence of some form of final settlement on the books of the central bank channel systems collapse. Woodford makes this conceptual error because he assumes that moneyless accounting systems of exchange can be applied to model e-cash economies.

Get access to the full text of this article