Sovereign and Private Money in the Modern Money and Credit System

Vladimir Alexandrovich Slepov, Vladimir Konstantinovich Burlachkov and Mikhail Evgenievich Кosov

The purpose: The purpose of the article is to identify the causes and consequences of parallel (hybrid) circulation of public (sovereign) and private money in national economic systems. The sovereign money is created as a result of credit operations and transactions on repurchasing assets (bonds) carried out by central banks. This money is in operation in payment systems of central banks. The private money is created during credit operations of commercial banks and credited to their clients’ accounts. The parallel circulation of sovereign and private money results from the development of the money and credit system that ensures, firstly, credit activities, and, secondly, settlements between business entities. The results: The result of study include identifying the specifics and areas of developing the parallel (hybrid) circulation of sovereign and private money substantiated by institutional changes in modern monetary systems, in particular, the emergence of payment systems of central banks and the introduction of Basel standards for the activities of commercial banks. Such changes resulted from the development of money and credit relations in the digital economy that predetermined the acceleration of monetary settlements between business entities. In the modern economy, changes in the ratio of sovereign and private money volumes can have impact on the formation of interest and exchange rates. Main conclusions: The division of money supply formed in the modern economy into sovereign and private money has caused, firstly, the increase in the specialization of monetary system institutions form money supply, and, secondly, has concentrated interbank settlements in the payment system of the central bank in order to ensure stability and guaranteed payments. The current trend in the development of sovereign and private money is to strengthen its integration and interdependence resulting in the intensification of their flows and the correlation of the interest rates set by central banks and the interest rates formed in the interbank lending market, as well as the increasing influence of sovereign and private money supply on the dynamics of foreign exchange rates. The subject: The subject of the work is a hybrid circulation of public and private money. In the modern money and credit system, there is an active interaction between the sovereign money of the central bank and the private money of commercial banks. The determination of the characteristics of the money and credit policy in the context of hybrid circulation of sovereign and private money is a necessary condition for this policy efficiency. The hybrid circulation of sovereign and private money considerably complicates the achievement of the following traditional objectives of the money and credit policy: to form money supply, to ensure the balance between demand for money and money supply, and to maintain interest rates that are adequate to profitability in the real sector, as well as the stability of the exchange rate.

Volume 11 | 12-Special Issue

Pages: 1357-1364

DOI: 10.5373/JARDCS/V11SP12/20193346