All Questions
Tagged with central-banking money-supply
46 questions
-4
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1
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986
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Money creation - why do we need deposits and why do banks give out money? [duplicate]
Currently studying elementary economics but there's this one concept that I'm struggling to wrap my head around at the moment: money creation.
The way I understand it, banks can create money "out ...
- 109
0
votes
2
answers
146
views
Good books on money creation and monetary theory?
I just finished reading "Where does money come from?" (Ryan-Collins) on how commercial banks create the bulk of the money supply, and I am still hungry for more material that will help me ...
1
vote
1
answer
146
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What happens to the money supply when a bank is allowed to go bust
I'd like to ask this question in two different ways just to help clarify the issues.
Scenario 1. There is no deposit insurance and the central bank take no special action in response to the bank ...
- 1,046
2
votes
1
answer
64
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How would a Central Bank Digital Currency be different from a private bank deposit?
Both are digital, both can be transferred digital, and both are denominated in the same currency. A CBDC is "a direct liability of the central bank, rather than of private banks or coin issuers&...
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1
vote
3
answers
373
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Money Creation Confusion
I've been studying money creation recently and have come across some contradictory statements and different types of theories that I'd like to clear up.
The classical theory of money creation which ...
- 25
-1
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2
answers
142
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What have banks mostly done with their "excess reserves" obtained during QE
I put excess reserves in quotes because I know that in many countries there are no reserve requirements, so what I really mean by "excess reserves" is reserves in excess of what banks like ...
- 1,046
0
votes
1
answer
217
views
Central bank balance sheets and money supply balances
I've compared the central bank balance sheets of many countries and I've found some numbers strange for me. The balance sheet of a central bank should include all the assets on one side and all the ...
- 101
0
votes
2
answers
408
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How does the central bank reduce money supply by selling bonds if the buyer of the bonds can use bonds as currency?
When the central bank wants to reduce the money supply, it can sell bonds. That way, the money supply reduces by the amount paid for the bonds. The buyer will have bonds instead of cash. The bonds can ...
- 563
1
vote
1
answer
80
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Why the increase in bank loans is not reflected in increasing money supply?
In the US banking system, according to what I was able to understand, the way to increase the money supply (MS) is via commercial banks loans ( I suppose it includes loans to the government but in any ...
- 144
1
vote
2
answers
451
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Loans create deposits, banks "are not reserve constrained"?
It is often said that banks are not "reserve constrained" when it comes to lending, and that loans create deposits (and therefore commercial banks create money). I have some doubts about the ...
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1
vote
1
answer
65
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What Happens to Govt Securities on Central Bank's Balance Sheet on Maturity?
To properly clarify the motivation of the doubt think of a hypothetical world when there are no business cycles and Central bank intervenes in the market only to provide enough liquidity to sustain ...
- 1,817
-2
votes
2
answers
417
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Is new money created when banks buy Treasury Bonds in primary auction?
From my understanding of the current monetary system when a bank issues a loan it is effectively creating money for the receiver of the loan i.e Mortgage. This increases the M1, M2, M3 numbers of the ...
- 13
0
votes
1
answer
77
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If repo period is just one day, how do banks arrange the cash to repurchase the securities from the Central Bank?
The RBI (India's Central Bank) website says that "predominantly, repos are undertaken on an overnight basis, i.e., for one day period."
So basically, the Central Bank buys securities from ...
- 117
1
vote
1
answer
41
views
Any support for the idea that QE is employed to prevent the money supply from contracting
It appears to me that QE has been employed after the collapse of housing bubbles - both in Japan in the early nineties and in many other countries around 2008. During a housing bubble there is a high ...
- 1,046
5
votes
3
answers
2k
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Is it true that the Federal Reserve is not federal and has no reserves?
The Money Masters is a 1996 documentary film that discusses the concepts of money, debt, taxes, and describes their development from biblical times onward.
Its main points were summarized by a ...
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3
votes
3
answers
307
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Can banks 'create' money on their own or do they need help from other banks?
My current understanding of the banking money multiplication process goes as follows: Alice comes along and deposits 100 cash into Bank A. Bank A gains 100 in vault cash (reserves) as an asset and 100 ...
- 171
4
votes
1
answer
109
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Do open market operations permanently increase the money supply?
Suppose the Fed buys 1000 dollars worth of T-Bills in the open market to try decrease interest rates and increase the money supply. It does this by printing money and electronically increasing the ...
- 171
1
vote
2
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348
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Exogenous Money Supply
In the first 10 seconds of the following video: https://youtu.be/anZ58gZcxqk,
A claim is made that in the Exogenous Money Supply Model, Money Supply is not determined by interest rates. The person ...
- 307
27
votes
14
answers
12k
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Why do banks take deposits if they do not need them to make loans?
I have taken some economics courses in university, where I was introduced to fractional-reserve banking. From my understanding, in fractional-reserve banking, the bank has motivation to encourage ...
- 563
1
vote
2
answers
96
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How does the Fed's stimulus push stocks markets higher?
I read that the Fed’s stimulus last March has contributed to a spectacular rally in stock markets. And indeed S&P500 has increased a lot since March.
But how does the mechanism work? How does the ...
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6
votes
2
answers
833
views
How can non-US banks issue USD loans?
I understand, commercial banks are entitled by the Central Bank to "create new money" when they issue a loan and correspondingly "destroy the money" when the loan is paid back (...
- 309
4
votes
1
answer
136
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How buying bonds indirectly from the government prevents the central bank from financing government deficit?
From Krugman's macroeconomic textbook (highlighting is mine):
"In an open-market operation the Federal Reserve buys or sells some of
the exist- ing stock of U.S. Treasury bills, normally through ...
- 1,135
0
votes
2
answers
144
views
Why does the Fed feel the need to reduce its balance sheet? [closed]
Why does the Fed feel the need to reduce its balance sheet?
What is the problem with the Fed having a large balance sheet long term? What would happen if the value on the Fed's balance sheet ...
- 649
2
votes
1
answer
117
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How do debt-free governments control the money supply?
From what I read in my introductory macroeconomics textbook, central banks can control the money supply by selling government bonds in the market (decreases money supply), or by buying government ...
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0
votes
1
answer
134
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How yield rates influence the "cost of borrowing" for borrowers
I am currently learning about quantitative easing, and I am having trouble understanding yield rates and how that influences the "cost of borrowing".
This is the resource I am using.
The lecturer ...
- 191
0
votes
1
answer
58
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Would saving money outside of banking system be able to reduce monetary base?
First of all, here is definition of monetary base taken from Investopedia
A monetary base is the total amount of a currency that is either in general circulation in the hands of the public or in ...
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1
vote
2
answers
126
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Initial creation of reserves
I am currently reading the book "Where does money come from?" which is co-authored by Richard Werner after I took the "Money and Banking"-class in coursera by Perry Mehrling.
There are certain ...
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-1
votes
1
answer
84
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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?
- 107
0
votes
1
answer
268
views
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 ...
- 101
3
votes
0
answers
7k
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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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1
answer
69
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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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-1
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2
answers
179
views
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 ...
- 343
1
vote
4
answers
217
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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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1
vote
0
answers
81
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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 (...
16
votes
3
answers
22k
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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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1
vote
2
answers
151
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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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0
votes
1
answer
147
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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 ...
- 115
3
votes
2
answers
2k
views
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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1
vote
2
answers
799
views
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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2
votes
2
answers
75
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Can a government or central bank work to reduce inflation without hiking interest rates and causing the currency to appreciate?
Since trying to lower inflation will have some undesirable consequences, such as currency appreciation, which hurts exports, should governments and central banks keep hands off on inflation?
But ...
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2
votes
1
answer
79
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Isn't money moving towards central bank in the long run?
Central banks typically pumps money into the system by :
lending out to private banks
buying govt bonds
But in both these cases won't the central bank get back more money when it ends it's position (...
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2
votes
1
answer
7k
views
How government borrowing from central bank increases money supply in economy?
Yes, public finance by government may lead to increase in money supply in economy. But, if govt borrows money from central bank, less amount of money is left with central bank to lend it to banks and ...
- 21
3
votes
3
answers
2k
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Money supply control vs. interest rate control
In a macroeconomics book I'm reading, the author talks about money supply control vs. interest rate control as two different approaches in monetary policy of a central bank.
With the goal of price ...
7
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5
answers
1k
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How is the interest on fractional reserve money creation paid?
In fractional reserve banking commercial banks create money when they make loans. When these loans are paid back the account is zeroed, the created money disappears, but the bank is still entitled ...
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8
votes
3
answers
4k
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What prevents a bank from simply going into their computer system and adding some zeros to their bank account? [duplicate]
This question has been bothering me for a long time and I’m hoping that someone here can help to answer it.
I will use Greece as an example, but my question could really be applied to any country or ...
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4
votes
2
answers
4k
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What effect would raising reserve requirements while printing money have?
It is generally accepted, that printing money will be inflationary, as it increases the money supply without a corresponding real growth of the economy.
At the same time, if the central bank ...
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