Questions tagged [central-banking]

In reference to activities undertaken by the central bank mainly to influence nominal interest rates, money supply and, eventually, price levels.

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Who did truly profit from great recession investors or central banks?

I am going to put this very simple Investors: invest in bank +700 billion Bank: invests in people -700 billion People: get housing and investments +700 billion but fail to pay back Bank: fails 0 ...
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What does the Bank of England do with the interest it receives?

Seeing as the Bank of England is free to create money, is the interest it receives meaningful? What does the bank do with it?
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What happened to the money multiplier after QE?

QE meant that the monetary base increased dramatically, yet we don't see such a large reaction in money supply (I am thinking of M4 for the UK) nor in inflation. Why is this money not being lent out? ...
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How is seigniorage redistributed in the Eurozone?

An ECB page notes that: As euro banknotes travel freely across borders, at any one time the number of banknotes in circulation registered at each national central bank can vary enormously. The ...
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How do people check or trust that central bank is not cheating? [closed]

How people can be sure that somebody, cooperating with central bank (or working in it), is not creating money in digital or paper form for themself, so that nobody else notices it?
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Is it possible to repay the world debt? If not, why do we care?

First of all, let me apologize if the coming questions may sound stupid to expert. I am no expert in economics, I have no training nor I have followed any traditional curse. I am just curious (and ...
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Why are the Fed's goals often described as the “dual mandate” and not the “triple mandate”?

The Federal Reserve Act Section 2A states: The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit ...
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39 views

Fed must hold collateral equal in value to notes in circulation

The Fed's website has a FAQ "Is U.S. currency still backed by gold?". Part of the answer writes: The Congress has specified that Federal Reserve Banks must hold collateral equal in value to the ...
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Nominal vs real growth of monetary base

Can someone clarify the difference between nominal and real growth of monetary base? I believe it is the policy of some central banks to target for example 0% nominal growth in the monetary base. What ...
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Central bank rate hikes and credit demand

Can someone help me unpack the quoted statement below? Trying to understand how the supply of credit influences the fed raising rates. I guess, why do rates rise or fall in conjunction if the fed ...
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1answer
75 views

Central bank loss function

$$ L_t = \gamma(\pi_t - \pi_t^\otimes)^2 + \hat{Y}_t^2 $$ Central banks loss function is given by the equation above. This loss is increasing and convex in the distance from the inflation target, i.e....
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What does it mean when a discount lender “rediscount[s] reserves”?

I was reading a wikipedia article about the evolution of global financial system: https://en.wikipedia.org/wiki/Global_financial_system#Interwar_period:_1915%E2%80%931944. In the passage about the ...
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Does the Federal Reserve have bank accounts for banks?

Banks are constantly transferring electronic dollars to each other. There must be an entity that tracks how many digital dollars each bank has. Does the Federal Reserve have "accounts" for banks? In ...
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Did the robbers from Money Heist real steal noone's money?

Money Heist (original Spanish title: La Casa de papel) is a Spanish TV show about a bank heist. From Wikipedia (bolding mine), In Money Heist, a mysterious man, known as "The Professor", is ...
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Why do many countries hoard gold bars?

In my country, the only legal way to sell a gold bar is to sell it to the central bank. What are the reasons why some countries hoard gold bars?
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How do central banks earn profit?

I thought of Central banks as the regulators of financial markets. But surplus reserves of some Central banks surpass giant corporate companies. Please explain me how do they manage to make profit in ...
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Would capitalism without banks work?

According to Merriam-Webster's dictionary, capitalism is "an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, ...
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Why don't we mint more m0 instead of creating m1 through fractional reserve banking?

From what I understand, m1 money is just as liquid as m0 since an individual can withdraw it from the bank at any time and in any quantity (up to the amount (s)he deposited). Because of this I don't ...
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Why doesn't the central bank extend loans directly?

I've been thinking about the credit theory of money lately and how it creates money. Since Banks look for sufficient reserves after extending a loan, and since the central bank always loans out money ...
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Understanding interest rates

When a central bank 'pays' interest rate X / year, what does it mean exactly? Is that pure money printing? Where does that money (interest rate) come from? does it increase the debt of the country? A ...
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1answer
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Where the money from QE goes

So when QE is used (or something similar that results in printing mone), where does the newly created money go? Does some entity get free money? Why is that allowed?
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Why would a rise in the discount rate stop foreign gold drain and make banks fail?

I am reading "Capitalism and Freedom" by Milton Friedman. In Chapter 3, "The control of Money", Dr. Friedman explains how the Fed exacerbated the Great Depression of the 1930s. In particular: In ...
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Why do central banks print money? [duplicate]

If a country's central bank prints money, it causes inflation. However, apparently, small amounts of inflation is a good thing. Why is the case? What would happen if central banks stopped printing ...
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How does changing the Bank of England base rate work?

If we assume the demand for money (D above) is fixed in this position (for the purposes of this question), and supply (S) is fixed in this position, then how can the BoE change market interest rates (...
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Why is national debt bad if the central bank can keep buying bonds?

When I read about national debt, it's usually about how debt is bad because with too much debt, debtors would demand higher interest rates. Eventually the government can't pay the interest, defaults, ...
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Hyman Minsky's view on Bank Examination

In Stabilizing an Unstable Economy (1986), Hyman Minsky argues that "bank examination is largely perfunctory... rather than an inquiry into the economic viability and the exposures to risk of banking ...
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Why are required reserves so trivially low?

We know that required reserves are the reserves that central bank requires banks to hold in reserves. Reserves= Required Reserves +Excess reserves. But I see that in 2017 Total Reserves (RESBALNS) = ...
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Is there merit to the argument of reducing the US trade deficit

Is the merit to the argument of reducing the US trade deficit and the inequitable tariff regime imposed by its trading partners that works unfavorably towards the US. Does this give merit to the ...
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How does national debt work?

I'm trying to understand national debt. I gather that the United States, and other nations with central banks, accrue debt basically by printing new money at their central bank. This, I hypothesize, ...
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Open market purchase of securities and it's effect on balancesheet

An open market purchase of securities lead to increase in bank reserves ( Liability side) and increase in assets(asset side) of central bank balance sheet. My doubt is why it leads to increase in ...
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Is it possbile central banks are outside of books getting money from deflation? [duplicate]

Is it possile that central banks are secretly stealing from the economy by printing money when the the dollar deflates, so the dollar stay the same value and nobody notice it? What if the dollar ...
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Do banks make profits by selling bonds to the central bank?

I am a bit puzzled by the quote below, from here (emphasis mine): Modern monetary theorists have helped clarify the obvious point that private banks are not essential to the design of the system. ...
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Why is money in circulation a liability of the central bank?

We know that the money today is fiat currency, that it is money because the government says it's so. So when new money is printed or loaned out to the commercial banks by buying treasury bonds, ...
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When the ECB does QE, does it print new money?

I knew that when the Fed in the US buys bonds through Quantitative Easing, it does so using money it has from previous profits and that it doesn't print new money. However, I was reading this article ...
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How does the Fed get money [duplicate]

As far as I'm aware, the Federal Reserve has 4.5$ Billion on its balance sheet. Where did it get the money for buying all those assets? I understand that it makes money out of interest on the bonds ...
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How have central banks been injecting currency after crises since 2007?

In an article by Jean-Michel Naulot about the 2007–2008 financial crisis, I read (my translation): Although central banks had an exemplary reaction at the time of the [2007–2008] crisis, they ...
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263 views

How can the HKMA peg the Hong Kong dollar at 7.8 HKD/USD for so long?

A lot of pegged exchange rate systems don't stay pegged for so long (e.g. because the central bank run out of reserves to maintain their values) So far I understand that the HKD is 100% backed by the ...
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Forward Guidance - What happens when the FED unloads its balance sheet

Please Excuse my ignorance. The US Federal Reserve has issued forward guidance telling the world that it is going to start to sell its (well a little less) 4.5 trillion dollars worth of securities ...
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Isn't the liquidity trap about real interest rates?

Here is a so-called thought experiment. Suppose the inflation rate is negative, the nominal interest rate slightly negative, and the real interest rate positive (call it $r$). I think people would ...
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Wealth effect from OMO

In a paper by Eric Leeper he says: For example, a contractionary open-market sale of government bonds raises nominal interest rates, including yields on government bonds. If the higher debt ...
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Purchase of the public debts by the ECB

In France, one of the presidential candidate said that the European Central Bank should purchase the public debts of the country and transform it into a perpetual debt (this is a literal translation, ...
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Why does not the Bank of England set the Libor?

In a report by the BBC, it emerged that the Bank of England suggested some banks to lower the Libor, around 2008. The Libor is normally set by commercial banks, and it is directly affecting mortgages ...
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How does reverse repo rate affect money supply?

What is the impact of increase/ decrease of reverse repo rate on Monetary Base, Money multiplier and therefore, overall money supply?
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Central Banks, Large Scale Asset Purchases and Inflation

First, the overview: With the fractional reserve system, money/credit is primarily created through loans on deposits but the bank is required to maintain their deposits up to a certain amount (...
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How do central banks create money to pay interest on reserves

Referring to this answer (https://economics.stackexchange.com/a/15321/12013) for the technical process of money creation. How do central banks create the money to pay interest on its reserves (...
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What physically happens when foreign currency reserves change?

Assume that the United States decided to hold more yuan in the federal reserve. Which processes does that involve? I assume there is some sort of electronic exchange between the two central banks ...
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Are there countries with free banking?

Are there any countries in which banks do not need to follow any special regulation other than the regular business regulations. If not, are there any countries that come close? For more information ...
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Does a strong dollar achieve the same tightening effect on the economy as rising interest rates?

Rising interest rates means the cost of borrowing USD goes up. A stronger USD means USD becomes more expensive. Wouldn't that naturally follows that the cost of borrowing USD goes up since each dollar ...
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How do central banks regulate the money supply to avoid inflation?

It is a tricky problem. Historically, poor control money supply led to inflation. Out of control money supply led to hyperinflation. Central banks seem to do a wonderful job in recent years with ...