Should credit card balances be included in the money supply?

double post

leonidia:

Maybe, maybe not, but I'm not quite sure where you're going with this. Are you attempting to equate bank B with the credit card issuer? I don't see the similarity. I haven't deposited any money with my card issuer, or are we talking about something else here?

Yes, this is pretty importaint I think. I haven't given them my money, so they can't take my money and lend it out to someone else under any circumstance.

Credit cards are a promise they will do whatever they can to issue credit on demand up to the limit. How or where they get the cash when you ask for it is not as relevant as in the case when you have given a bank your money up front. The information could be a bit more clear then present credit cards, but it not at all as bad as present demand deposit account.

I don't think I would rely soly on a credit card for cash for reserves, but a credit card combined with the possibility to borrow from family does suffice just fine at this point in my life at least. When I finish my studies and buy like a house and a car my need for reserve cash will rise significantly obviously and I will most likley have some amount of demand deposit reserve along with a credit card.

leonidia:

LanceH:

I'm not sure if I would deposit money at Bank B.  Would you?

Maybe, maybe not, but I'm not quite sure where you're going with this. Are you attempting to equate bank B with the credit card issuer? I don't see the similarity. I haven't deposited any money with my card issuer, or are we talking about something else here?

Hmmm... you sound hesitant.  If your aggregation principle is so obvious, then why wouldn't it work in this context too?  ;)

If the sharing of loanable balances allows a card company to dispense with 100% reserves, then would the sharing of drawable balances not also allow a bank to dispense with 100% reserves?

If everyone wants their "emergency" cash at the same time (perhaps it's the same emergency?), then can they still rely on their credit card?

I'm not denying that CCs reduce the need for cash under conditions today. But I feel that is because they are implemented by way of a fractional reserve, and are practically as reliable as today's bank deposits.

What's also interesting is that credit cards today probably DO increase the money supply indirectly - because they reduce the demand for CURRENCY, which increases banks' share of the monetary base, which in turn facilitates money creation.

LanceH:

Hmmm... you sound hesitant.

I'm not hesitant. It's just that it's impossible to say one way or the other without knowing the risk etc. Each customer would have to take any number of risk factors into account. But this whole line of reasoning completely misses the point.

LanceH:

What's also interesting is that credit cards today probably DO increase the money supply indirectly - because they reduce the demand for CURRENCY, which increases banks' share of the monetary base, which in turn facilitates money creation.

That's definitely true. Same goes for debit cards.

As another example, should telephone cards be included in the money supply? Or Hong Kong's "Octopus Cards"? Using these payment cards, you give a Merchant $x for one of these cards "charged up with cash"... the merchant goes and spends that $x - so it's definitely still floating around - and you've got $x worth of cash to spend sitting on your card. In this case, makers of things like the Octopus Card are essentially making money just like banks do.

Such payment cards would not have to be denominated in terms of the currency used to add credit to these either - they could be charged up with something like "Airpoints" or AT&T "units of time" that, if managed correctly, could be independent of and thus immune to the inflationary problems of the economies in which such cards were used... so they'd be handy things indeed in places like Zimbabwe, and actually pretty handy in the USA or Europe, for that matter. Maybe people would rather have their funds stored on petrol cards than in savings accounts?