The central bank of a country is responsible of the printing of new currency notes and coins/ money to the economy of a country. My question is how they introduce this new money into the economy in a 'fair' manner. Giving it to one individual or group would be privileging them against other such groups, right? So, how is it done?

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    $\begingroup$ Well this is no "well known facts" because it is simply not true. Banks create money whenever they issue a loan ... Central banks can also influence money creation through the monetary base channel and other means. However, governments do not create money. $\endgroup$
    – Alexis L.
    May 25 '16 at 21:22
  • $\begingroup$ Thanks. I've edited the question now to incorporate relevant changes. $\endgroup$
    – user45959
    May 25 '16 at 21:27
  • $\begingroup$ I am not sure that "fair" or "unfair" is good way to think about monetary creation. Have you read the corresponding wiki page? $\endgroup$
    – emeryville
    May 25 '16 at 22:06
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    $\begingroup$ Commercial banks lend money to people like you and me. They create money when they issue a loan. But in order to issue a certain amount they have to keep some liquidity which is the channel through which central banks can influence the quantity of money that is running through the economy (to put it in a simple way). So the "new money" is issued by commercial banks to individuals like you and me who borrow it ! $\endgroup$
    – Alexis L.
    May 25 '16 at 23:09
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    $\begingroup$ newyorkfed.org/aboutthefed/fedpoint/fed01.html ---- If you're asking how minting institutions deliver freshly minted currency into circulation. $\endgroup$
    – 123
    May 26 '16 at 4:09

One way to think about this is that money is put in circulation when the central bank buys assets from the citizens of a country. Sometimes this is really the main thing going on, for example, to perform QE the Fed bought all kinds of securities from financial markets. When the fed buys these securities it pays banks by increasing the deposit balances of those agents selling the asset.

Another simple way that a central bank "buys assets" is when it gives a loan to a commercial bank. In the process of given the loan, the central bank will give physical cash to the commercial bank and keep the loan in its books as an asset.

This could also happen in an accounting sense but not in an economically meaningful sense, for example when a central bank "buys" bonds issued by the government of its country. The government might never pay or the bonds might loose most of their value if inflation increases interest rates for example, so its a kind of fake purchase.

Finally, economists talk about a 'helicopter drop', where the central bank would print money and then just through it out fro a helicopter, hoping it is evenly distributed among the population... but that's mostly just an imaginary scenario.

[BUT, NOTE: This is a caricature of how physical currency can be printed by a bank and shipped out. Quantitatively, an important part of money creating takes place within the banking system, as banks receive deposits from clients and give out loans, physical money gets "multiplied".]

  • $\begingroup$ Although I mostly agree with your answer, I suggest to first give some basics as to money creation through loans and commercial banks, which is the most common way of money creation... Indeed this user seems not to know how the entire process works and therefore unconventionnal monetary policy is a long shot if you don t first understand that ! $\endgroup$
    – Alexis L.
    May 26 '16 at 11:29
  • $\begingroup$ Ok, I see the potential for confusion. Thanks, SB $\endgroup$
    – Fix.B.
    May 26 '16 at 14:20
  • $\begingroup$ Can this newly printed money end up directly in the hands of people employed by the government? Like police, firefighters, etc. $\endgroup$
    – vsz
    Sep 10 '16 at 22:04

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