Presenting on monetary policy and banking, he identified three key assumptions requiring review: the role of banks as financial intermediaries, the relationship between interest rates and economic growth, and the quantity theory of money.
He said commercial banks did not simply take deposits from savers and lend them to borrowers, but created new money when they extended credit.
“When a bank grants a loan, it credits the borrower’s account without necessarily transferring funds from another customer’s account or drawing down existing reserves,” he said.
Dr Abille said that suggested that bank lending could create new purchasing power in the economy.
He also challenged the assumption that lower interest rates necessarily stimulated economic growth while higher rates constrained it.
