The topic addressed was: “Does Money Still Matter?”, with Mervyn King as an invited guest. M. King has been the Deputy Governor of the Bank of England for almost four years, being in charge of monetary policy and a member of the Monetary Policy Committee. Prior to this, from 1991, he was Chief Economist, Executive Director and, in May 1997, founding member of the Monetary Policy Committee.

In his article, Mervin King is concerned about the increasing disregard for money in discussions relating to monetary policy and theory. Empirically, the long-run correlation between monetary growth and inflation appears extremely significant based on a large sample of countries. But the collapse of this relationship in the short-run, together with instability in money demand, has tended to relegate money to the second tier. To ignore money in this way does not appear desirable and even presents certain dangers. Money can indeed have a role in the transmission of monetary policy beyond the usual effects which transit through the interest rate. This can be the case, in particular, when the nominal interest rate is close to zero, as in Japan. More generally, the quantity of money can affect the level of transaction costs observed in financial markets and can modify the return on financial assets through their risk premium. Future research should focus on the effect that transaction costs have on determining asset prices and look further into the role of money as an insurance against liquidity risks. In particular, the use of money as opposed to electronic payments is strongly dependent on the technology of payment systems. Such technological changes could explain the instability of money demand, but do not undermine the quantitative theory of money.

Zvi Eckstein, Professor at the University of Tel-Aviv and the University of Minnesota, introduced the discussion. According to him, care should be taken in interpreting the weak correlation in the long run between money and economic activity. Indeed, it can be the fruit of counter-cyclical monetary policies followed by certain countries, or reflect the strong variability of monetary and fiscal policies.

He questions the efficiency of monetary policy when the interest rate approaches zero. Based on various estimates of the demand for money in the United States and in Israel, he shows in particular that the data confirms the hypothesis of a “liquidity trap” making monetary policy ineffective as interest rates reach zero. Finally, in line with M. King’s suggestions on the desirable directions of future research, Z. Eckstein evokes the theoretical models to which he has contributed. These combine the role of money (external money) in the supply of transaction services, with the supply of credit services (internal money) by the financial sector, in the form of bankcards and cheques. Credit services are able to replace money in transactions but at a certain cost. The parameters of technology in transaction services play a dominant role in the determination of the coefficients of money demand. Thus, the decisions made by non-financial agents to use a particular channel for transacting, affect money demand and the transmission mechanism of money.

The second discussant, Patrick Werner, Inspecteur des Finances, is also a chairman of several companies, subsidiary companies or investment companies, and in particular BMS (Billétique Monétique Services) Operations and BMS Development, two companies which specialize in the operations and the development of electronic money. In the first part of his remarks, P. Werner stresses that the decision criteria of non-financial agents to utilize different monetary supports should be studied thoroughly. That is true at the same time for the detention of cash compared to the utilization of broader payment methods and the utilization of electronic money as a preference to notes and coins. However one should not ignore the tendency to demonetize in certain communities.

In the second part of his presentation, P. Werner examines the contribution made by banks in the development of technologies for transaction services. They must fulfill their role in distributing the new “virtual” money. The technological innovation at the same time makes it possible to circumvent rigidities and stimulate more rational behavior. However, risks of breakdown exist, although they are different in magnitude for the electronic wallet and “network” money. In connection with the new actors or as independent transmitters, the banks have a comparative advantage in implementing electronic money.

This first forum highlighted the benefits to be gained from dialogue between central bankers, representatives from academic circles and professionals of the banking sector. Empirical work based on microeconomic data should delve further into the themes discussed. One can quote the recent analysis on this subject by Attanasio, Guiso and Japelli, which highlights that sensitivity of money demand to interest rates depends on the nature of technologies used by households [2].