A New Financial System for Poverty Reduction and Growth

IMF Working Papers, October 1, 2002

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A New Financial System for Poverty Reduction and Growth

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Bibliographic details

• Authors: Biaggio Bossone, Abdourahmane Sarr
• Published: October 1, 2002
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451858969.001

Core proposal and premise

• The availability of stable demand deposits for bank lending, in the process of which inside money is created, does not require any act of intentional saving.
• The mechanism allowing banks to lend deposits does not function well in low-income countries, owing to a number of structural constraints.
• Proposal: separate inside money creation from lending, and distribute it on a nonlending basis to depositors through specialized payment service institutions.

Expected impacts and objectives

• Broaden access to financial resources.
• Fuel non-inflationary, demand-led growth.
• Foster financial deepening, diversification, and stability.
• Align the proposed reform with market incentives and sound economic management.

Analytical rationale

• Emphasizes the role of inside money creation (demand deposits) in supporting bank lending and the broader monetary circuit.
• Identifies structural constraints in low-income countries that impede the deposit–lending mechanism.
• Argues that redistributing inside money via nonlending payment institutions can decouple money creation from credit intermediation to improve financial inclusion and macroeconomic outcomes.

Subject areas and keywords (as listed)

• Subjects: Asset and liability management, Bank credit, Banking, Central banks, Currency issuance, Financial institutions, Liquidity, Loans, Money, National accounts, Purchasing power
• Keywords: bank, Bank credit, bank debt, Banks, capital goods, circular flow, company stock, Credit, credit risk, Currency issuance, DCI department, DCI liquidity, DCI system, deposit account, Deposits, enterprise, Finance, Growth, Inside Money, Liquidity, liquidity distribution, Loans, money creation, money stock, Poverty Reduction, poverty trap, private sector, Purchasing power, WP

Content in this bundle

• A New Financial System for Poverty Reduction and Growth - WP/02/178
  • A New Financial System for Poverty Reduction and Growth - WP/02/178 (Markdown version)
  • A New Financial System for Poverty Reduction and Growth - WP/02/178 (PDF)