1. Semester: III/IV
2. Number of Credits: 4

Preamble
The course is 1. constructive, that is, will exploit the open foundations of the subject to work through alternative monetary arrangements using microeconomics, and 2. relevant, in that it connects with abiding discussions on the nature of money, the role of banks, the appraisal of central banks, a world central bank, and so on.

1. One-period trade (12 lectures)
Market mechanisms: The “bid-offer” market, many monies
Gold and paper money: The loan market, the money rate of interest
A fractional reserve system: modeling trust
Fiat money: modeling bankruptcy
Incomplete markets: commodity money and other structures
Money and liquidity: the store of value function

2. Multiperiod trade (12 lectures)
Commodity money and credit: “badly distributed “money and credit
Fiat money and credit: strategic market games with/without lending
Transactions and the float: financing the float
Capital Stock, Salvage Values, Expectations: strategic market games with uncertainty
Money and Transactions Costs: endogenous money, the combinatorics of exchange
Brokers and Dealers: middlemen, clearinghouses, and setup costs

3. Banking Arrangements (12 lectures)
An “ideal banking system”: a modern loanable funds theory, the bank’s portfolio problem
Equilibrium: from the corn economy to the monetary economy
Towards a general equilibrium theory of credit
Narrow Banking: “Deposit Creating Institutions”
Free Banking
Universal Banking

4. Central Banks (12 lectures)
Open-market operations: incentive-compatible contracts
The Lender of Last Resort function: moral hazard
Monetary policy with informal financial markets: dual economy dynamics
Monetary-Fiscal Coordination
Managing Aggregate Risk: systemic fragility and policy
A World Central Bank?: The IMF?