The influence of monetary policy over interest rates, and via interest rates over non‐financial economic activity, stems from the central bank's role as a monopolist over the supply of bank reserves. Several trends already visible in the financial markets of many countries today threaten to weaken or even undermine the relevance of that monopoly, and with it the efficacy of monetary policy. These developments include the erosion of the demand for bank‐issued money, the proliferation of non‐bank credit and aspects of the operation of bank clearing mechanisms. What to make of these threats from a public policy perspective – in particular, whether to undertake potentially aggressive regulatory measures in an effort to forestall them – depends in large part on one's view of the contribution of monetary policy towards successful economic performance.
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