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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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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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USA exporting inflation

I would like to ask if my understanding is correct: the US Government(more specifically the Fed) can print however much money it wants as they can easily export the inflation since many countries use ...
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How did Alexander Hamilton end the Panic of 1792?

According to historical sources, Alexander Hamilton used open-market purchases, wherein investors would buy government securities, to end the Panic of 1792 in about a month. What was role of the Bank ...
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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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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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I Want to Build a Game Based on a Full Reserve Banking System

I want to build a game based on full reserve banking monetary system. I recently discovered this document https://www.scribd.com/document/154150356/1939-A-Program-for-Monetary-Reform describing how ...
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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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What is the composition of official reserve account?

What is the composition of official reserve account? Is it just composed of mere foreign currencies which don’t earn any interest or it is made up of foreign bonds, securities and gold as well? If ...
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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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Zero ECB rates and the danger of zombie companies

There is this argument that the zero ECB rate promotes more and more zombie companies in europe. If the ECB would increase the interest rates, these zombie companies would collapse (probably all at ...
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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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Has the Chilean central bank intervened in the foreign exchange markets since 2001?

I know that the Chilean central bank intervened in 2001 twice. Has it ever intervened since then? Is the Chilean Peso a completely free float currency?
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why is the change between euro and CHF rising these last two months

I saw few days ago that the change between euro and CHF is rising quite much these last months: https://www.bloomberg.com/quote/EURCHF:CUR I didn't see any change in the central bank policy lately. ...
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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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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 ...
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Could a hike in interest rates cause a country to be unable to pay back it's debt burden?

Sometimes I read in news articles, that a central bank can't hike the interest rates much higher, because then the government would be unable to pay the interest rate burden of it's government debt. ...
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Why would a central bank buy government bonds?

E.g. the Bank of Japan buying Japanese government bonds.
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Who was the first economist to write about central banking?

I am interested in the origin of a central banking theory. I've heard that Karl Marx was the first author who wrote about central banking system. Was he really the first one? Or was there any other ...
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How is the banknote denomination designed?

Recently India demonetized their 500 and 1000 rupee notes. As a replacement a new 2000 rupee note was introduced. This has resulted in some chaos in the commercial markets due to decreased ...
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Does only enough money exist to pay the principal on all debts, and none for the interest or for anything else?

This is reported to be the testimony of Marriner Eccles, Governor of the Federal Reserve Board, before the House Committee on Banking and Currency, on September 30, 1941. Does this mean that only ...
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How does the central bank changing interest rates change interest rates in the commerical banking sector?

I understand that the federal reserve manipulates the federal fund rate in order to change interest rates in the wider banking sector. What I am struggling to understand is how the changing the ...
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How does the taylor rule make the MP curve upward sloping?

I know it's because $\bar n \tilde Y$ is added in but isn't the MP curve chosen by the government?
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How would the risk premium and a simplified taylor rule change the MP curve?

Ok so we're given a monetary policy rule where $$R^{CB}_t-\bar r = \bar n \tilde Y \space where \space \bar n>0 $$ and $$R_t = R^{CB}_t+\bar p $$ Where $\bar p $ is risk premium $\bar n$ is ...