Here is a new post on FT’s Alphaville blog on this topic. It is somewhat crackpot. If anyone knows whether this has already been formalised please let me know. Asking for a friend.
One thing that did not make the editor’s cut there is this….
Recapping, the basic idea is to get the central bank to target the voluntarily held denomination ratio, which I think is equivalent to it targeting the price level.
Why do this? I don’t know. Maybe the whole monetary framework is just not believable for some reason and we are hunting around for a reason to keep the 1p.
Bonkers though this idea is, it has one thing commending it, that denomination ratio targeting doesn’t require measuring the price level. All it requires is being able to measure the exact number of each denominations that have been issued, which is standard business management for a Mint or Note Issue department. This is intriguing because in modern economies we worry about our ability to measure prices when the product mix or quality of goods is changing a lot. The advent of smartphones, apps and all the rest of it has posed just that question about our statistics. [Is the productivity puzzle a fact or an artefact?]
Having the BoE target both the denomination mix and conduct the note issue might not look good, however, as it would have an incentive to force the note mix on the private sector if outcomes were not looking good.
So that suggests delegating the note issue to a fully independent Mint [ie a Mint that would have to be as separate from the Treasury and the BoE as the current BoE is from the Treasury]. This opens up a Pandora’s Box of consequential institutional technicalities to make sure that only the BoE can do monetary policy and LOLR. Probably something for another post.