Journal of Scientific Papers


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ISSN 2071-789X

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  • General Founder and Publisher:

    Centre of Sociological Research


  • Publishing Partners:

    University of Szczecin (Poland)

    Széchenyi István University, (Hungary)

    Mykolas Romeris University (Lithuania)

    Alexander Dubcek University of Trencín (Slovak Republic)

  • Membership:

    American Sociological Association

    European Sociological Association

    World Economics Association (WEA)




The central banking system paradox

Vol. 16, No 4, 2023

Víctor I. Espinosa


Universidad Autónoma de Chile,

Universidad del Desarrollo,

Santiago, Chile


ORCID 0000-0002-2481-5082 


The central banking system paradox


Miguel A. Alonso-Neira


Universidad Rey Juan Carlos,

Madrid, Spain


ORCID 0000-0002-6778-3594

Jesús Huerta de Soto


Universidad Rey Juan Carlos,

Madrid, Spain


ORCID 0000-0002-8358-1220


Abstract. The conventions of monetary theory assume the central banking system (CBS) as the starting point for achieving the stability and efficiency of the financial system. This paper stresses the stability-efficiency thesis based on the Austrian business cycle theory (ABCT). It argues that the stability-efficiency thesis under CBS poses a paradox for two main reasons. First, central banks' interest rate handling causes business cycles, yielding the intertemporal discoordination of the money and goods markets. Second, a central bank's lender-of-last-resort role is an incentive to call for further interest rate handling, making the chance of smooth business cycles difficult or impossible. This paradox is empirically analyzed and discussed through the True Money Supply (TMS) performance in the United States's business cycle phases between 1975 and 2022. Consistent with the ABCT, the research results unlock the paradox by showing that CBS causes business cycles. Some policy implications are outlined for further research and revision of monetary theory.


Received: February, 2023

1st Revision: September, 2023

Accepted: December, 2023


DOI: 10.14254/2071-789X.2023/16-4/3

JEL ClassificationE31, E32, E58

Keywords: interest rate, central bank, inflation, business cycle, 100 percent reserve requirements, banking ethics