Publication Date: July 2009
The introduction and widespread use of credit cards increases trading eﬀiciency but, by also increasing the velocity of money, it causes inflation, in the absence of monetary intervention.
If the monetary authority attempts to restore pre-credit card price levels by reducing the money supply, it might have to sacriﬁce the eﬀiciency gains.
When there is default on credit cards, there is even more inflation, and less eﬀiciency gains. The monetary authority might then have to accept less than pre-credit card eﬀiciency in order to restore pre-credit card price levels, or else it will have to accept inflation if it is unwilling to cut eﬀiciency below pre-credit card levels. This could be a source of stagflation.
Credit cards, Outside money, Inside money, Central bank, Inflation, Stagflation
JEL Classification Codes: D50, D51, D53, D61, E40, E50, E51, E52, E58
See CFP: 1330