Date of Award

Spring 2019




L. Randall Wray, Ph.D.


This thesis presents research on the evolution of the US-dollar-centric international money markets. The timeline starts from late nineteenth century US, where the New York call money market already featured a number of sophisticated techniques such as margin investing, over-certification, and re-hypothecation. Next, I explore the evolution of the market leading up to and after the Great Depression, through the regulatory period of the New Deal, and functional finance of the late 1930s and greater part of the 1940s. In the postwar period, I highlight the Federal Reserve’s push for free markets, the sudden rise of the euro-dollar market in the second half of the twentieth century—Minsky’s money-manager capitalism—and the Global Financial Crisis. Through all periods, markets evolved based on their prime directive: to make money. The concept of “shiftability,” which was introduced before the Great Depression, is now being rejected as financial institutions engage in creation and destruction of money given that their liabilities serve as money for other economic entities, and securities and bank loans are linked. Not only do loans create deposits, they also create private-sector securities. The regulatory framework of Basel III focuses on liquidity, which is implicitly based upon the global-liquidity concept. However, as I examine in this report, the Basel III liquidity framework neglects the contribution of the government sector, and its role in stabilizing the financial system. Instead, Basel III relies on the ability of the central bank and private sector to self-regulate through ratio-based constraints so that negative setbacks arising from the endogenous character of private liquidity, meaning debt deflations, are avoided. However, Basel III failed to recognize that the (i) money hierarchy is multi-tiered, and (ii) liquidity preference has a role in asset-price changes. Given these shortcomings, the Basel III liquidity framework does not contribute to counter-cyclicality, rather it extended the existing pro-cyclicality bias of international financial regulation.

Access Control

Open Access

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Economics Commons