Deposit Money and Interest Rate as its Service Charge (vol.2)
ISHIDA Kazuhiko

This paper tries to further develop the model proposed in Ishida[2011-b]1, which introduced an "interest rate" to a model of exchanges of goods as the "service charge" of using deposit money. In that model, an interest rate is assumed to be paid by the original borrower of deposit money from banks as its service charge. However, the service provided by deposit money is consumed not only by the original borrower, but also all the economic agents involved in the process of exchange of goods using deposit money. Thus, the service charge should also be shared by all the agents involved, and the model needs a mechanism that actually realizes such sharing.
The main conclusions of the paper can be summarized as follows:
1) The simplest way to realize the sharing is to make a "contract" to do so among all the agents. However, it is very inefficient and hence unrealistic to make and actually implement such a "contract" in the real economy.
2) Another way is to assume resale of services provided by deposit money. It is actually possible to create a model of realizing proper sharing of charges through resale of services. However, a market for such resale of service of deposit money is not observed in the real economy. This is because a similar sharing can implicitly be realized through more simple market transactions.
3) The key factor of realizing the proper sharing through market transactions is banks' purchase of goods in the market as inputs for their service production. Banks' purchase of goods creates additional deposit money in the economy, and in the competitive market, the amount of banks' purchase, and hence additional deposit money is equal to the service charge, that is, an interest rate.
4) This additional deposit money causes a rise in the prices of goods, and hence reduces the amount of the purchase and consumption of goods by the agents involved in the exchange of goods. Sharing of service charges can be realized through this decrease in consumption.
5) The model of sharing charges proposed in this paper also suggests that zero growth of the economy and a positive interest rate are not contradicting with each other.
1) Ishida, K., 2011-b, "Deposit Money and Interest rate as its Service Charge", 'Area and Culture Studies 83', Tokyo University of Foreign Studies (in Japanese)