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 banks keep vault cash instead of depositing all reserves at the central bank?
In what way to commercial banks benefit from keeping some of their excess reserves in the vault as opposed to depositing all of their excess reserves with the central bank (assuming the central bank ...
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Why don't central banks just donate money to their poor citizens, rather than QE?
Why don't they prioritize paying their citizens directly (Americans in this case) over providing liquidity, repo, buying bonds, and lowering interest rates? I have a BA in Economics, so hope this isn'...
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Can quantative easing be summarized as "The state prints cash to pay its debt to private sector"?
I find that most sources describe quantitative easing in an overly complicated way that obscures what it basically means.
As far as I understand a central bank is a public entity owned by a state, ...
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Central banking in Saudi Arabia
People say that central bank with autonomy is needed to avoid political business cycle but then how do we explain the existence of central bank in arab oil exporting countries like saudi arabia where ...
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China benchmark rates and Shibor relationship (chart)
I made the chart below for an assignment on People's Bank of China monetary policy during the financial crisis. The problem is that it got me very confused about the relationship between these ...
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central banking using the term reserve
The central bank of united states is called federal reserve and central bank of india is called Reserve bank of india.
What does the term reserve in central bank mean??
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World GDP increase
How does the world GDP increase? The world GDP tends to increase on average every year (exception being years of global recession). If in year x the world GDP was 100 million dollars, how can the ...
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How does an increase in the minimum reserve requirement affect the monetary base?
Monetary base is defined as currency+currency held by banks+deposits of banks at central bank. We assume that the current reserve is below the minimum reserve requirement. Which component of monetary ...
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Relevance of central bank
Why do we need central bank ?
surely the government can print currency (say at a regular 5% a year to create some inflation) and regulate banks by conducting audits through finance ministry and so on.
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What does it mean to "kickstart the economy"?
This answer claims that:
the central banks have been lowering and lowering [interest] rates, desperate to kickstart the economy, but it's not been working
What does "kickstart the economy" mean ...
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What happens when a country's central bank significantly reduces the available currency?
The central bank of Iraq has significantly reduced the note count from 55 Trillion to 5 trillion.
Logic would dictate that when a supply is reduced the value of the item that has been reduced will ...
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What justifies the authority of a bank to create money when they make loans?
This is somewhat of a political or philosophical question.
As explained by the Bank of England and elsewhere, the majority of broad money is created by credit to banks' accounts when they make loans. ...
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Why is there a big change in the money supply at the beginning of each month?
I was watching Argentina's daily change in monetary base for a selected period and there is a clear spike at the beginning on each month. Then during the month it slowly goes down until reaching ...
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Decreasing interest rate effect on economy
Central banks decrease sometimes the interest rate by saying this has positive effect on the economy and the development of countries.
One of the reasons is that it can be easier to do investments (...
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Do central banks pay their staff and other costs with money that they create?
Central banks like the Bank of England and the Fed must cover their costs. I was wondering how they do this? I can think of two possible mechanisms:
Government allocates money from its tax revenue to ...
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The centralized shift from barter to currency economy
Suppose some ancient king of small bronze age city-state wants to introduce universal currency instead of barter that is currently in overwhelming practice in his kingdom. In order to smooth the shift,...
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Question on Central bank loss function interpretation
How do you interpret this central bank’s loss function:
$$L(\hat x, \pi)=\alpha \hat{x}^2+(\pi-\pi^T)^2$$
where $\alpha >0$ and $\hat x$ is output gap.
Phillips curve is $\pi = \theta \hat{x}+\...
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Central bank loss function (I did a solution, but it doesn’t totally make sense I guess)
I have question on central bank loss function.
We know that the central bank loss function is
$$L(\pi, \bar{Y})= (\pi- \pi^e)^2+\beta \bar {Y}^2$$
And we know that fisher equation is $$i=r+\pi^e$$...
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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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When the Central Bank sells a bond, where does the money go ultimately?
As the accepted answer points out, the premise of my question was flawed. Thank you for the dispelling of my wrong assumptions. The original question follows.
There are two related questions (and ...
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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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Does the Bank of England have the ability to set reserve requirements for commercial banks?
I’ve been studying about monetary policy comittee.
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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?
Let me apologize if my questions sound stupid to experts. I have no training in economics. I am just curious and puzzled. I couldn't find any answer to the questions below.
As far as I have ...
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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 ...
user14083
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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 ...
user20317
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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 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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Capital flight and interest rates
I am currently reviewing some stuff on capital flight and self-fulfilling crises.
In this scenario, investors generally think that a low availability of reserves could imply that the central 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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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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