Munich Personal RePEc Archive

Money: A Market Microstructure Approach

Krueger, Malte (2008): Money: A Market Microstructure Approach. Published in: Rome Discussion Paper Series (January 2008): pp. 1-28.

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Abstract

The current discussion about the future of the financial system draws heavily on a set of theories known as the ‘New Monetary Economics’. The New Monetary Economics predicts that deregulation and financial innovation will lead to a moneyless world. This paper uses a market microstructure approach to show that a common medium of exchange that serves as unit of account will remain a necessary instrument to reduce transaction costs. This finding is supported by empirical evidence from foreign exchange markets.

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