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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14
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2answers
966 views

How do reserves move between the 12 federal reserve banks?

In single central banks systems (e.g. Bank of England) then the final ledger for electronic money transfer is the adjustment of reserve account balances. In the Federal Reserve System, there are 12 ...
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4answers
7k views

Why does any treasury / central bank hold gold?

I know the US treasury is slowly selling its gold reserves, but what is the actual mission and purpose when it comes to the holdings? What is the reasoning behind the slow rate of liquidation? I have ...
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3answers
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Is it possible to have a modern economy without a central bank?

Many mainstream economists say that such thing is impossible. Is there some specific reason why the financial system needs a central bank? In this video http://m.youtube.com/watch?v=BcuAOdXD0Go, ...
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1answer
466 views

Why hasn't Quantitative Easing surged inflation, or caused hyperinflation?

Quantitative Easing (QE) is the buying of bonds and other financial assets by the Central Bank with high-powered money, or money created by the CB for this purpose. Isn't this ad-hoc creation of ...
9
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3answers
8k views

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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3answers
1k views

Why did the Swiss National Bank abandon its currency peg so suddenly?

There are many theories about why the Swiss National Bank (SNB) abandoned its currency peg a few days ago. My question is more specific: why did they make the change so sudden? Why not reduce the ...
7
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3answers
190 views

Why should I get a bond with negative interest instead of having a bank deposit account either zero interest or positive interest

I don't get why central banks apply negative interest rates. They say that buy our bond and at the maturity, it will worth less than today. What is the policy outcome of such decision? Why an investor ...
7
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5answers
1k views

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 ...
7
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1answer
154 views

Differing Inflation Rates for Separate Income Groups; Literature?

So here's a few ideas that have been floating around my head since undergraduate university. It seems that money owned by the highest net wealth owners is always moving around and making a return, but ...
7
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3answers
246 views

How does a central bank create the money used for quantitative easing or lowering the value of their currency?

Up until last week, the Swiss central bank used Francs to buy Euros, in an effort to lower the value of the Franc; today the European central bank announced that it would use Euros to buy bonds in ...
7
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3answers
1k views

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 ...
6
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1answer
313 views

What did the Swiss National Bank use to purchase EUR while pegging the Franc to the Euro?

To peg its currency (CHF) to the Euro (EUR), the Swiss National Bank (SNB) made purchases of EUR to the tune of several hundred billion. By reducing the supply of EUR, the SNB made the EUR relatively ...
6
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2answers
139 views

Who regulates the balancing of the books for commercial banks? How? Is it public information?

I've just read Money Creation in the Modern Economy, an article published by the Bank of England. This article brings about a lot of questions in my mind. This article talks about money being created ...
6
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1answer
326 views

How is monetary policy sustainable, or even fair, in the current economy? [closed]

I've just read Money Creation in the Modern Economy, an article published by the Bank of England. I'm trying to wrap my head around this from multiple points of view, since it brings about a lot of ...
5
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2answers
365 views

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 ...
5
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2answers
79 views

British inflation up again, but crisis might come. What should the BoE do?

According to the latest ONS report, inflation is rising as a consequence of the (pre/post) Brexit devaluation. This graph about the Input PPI is pretty revealing (taken from here): Yet, with the risk ...
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2answers
403 views

Limits to Quantitative Easing Programmes

I have been reading recently on the quantitative easing programmes by the ECB and the BOJ, see http://www.cnbc.com/2016/04/07/what-the-bank-of-japan-boj-will-do-now-that-negative-rates-have-...
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7answers
1k views

Why didn't the money printing by the US Federal Reserve since 2008 lead to inflation?

http://www.telegraph.co.uk/finance/comment/liamhalligan/8484530/Americas-reckless-money-printing-could-put-the-world-back-into-crisis.html America's reckless money-printing could put the world back ...
4
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1answer
344 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 ...
4
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2answers
281 views

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 ...
4
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4answers
9k views

Why does the European Central Bank use the 5y5y rate to measure inflation

I cannot understand why the 5y5y swap rate measures inflation. I can see how the floating rate somewhat measures the rate of interest rates which are related to inflation. However I cannot understand ...
4
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2answers
840 views

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 ...
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1answer
183 views

Federal Reserve capital injections

What were the specific conditions that the Federal Reserve attached to the capital injections forced upon the major Wall St. banks during the Great Recession? How and why do they differ from normally ...
4
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2answers
4k views

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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0answers
65 views

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 ...
4
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1answer
54 views

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, ...
3
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3answers
919 views

What does a central bank guarantee against its currency?

During the Bretton Woods system, currencies were issued against gold. In contemporary times, what is the real thing against which currency is issued? What does the fiat currency actually guarantee?
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696 views

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, ...
3
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2answers
86 views

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? ...
3
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2answers
151 views

With inflation so low, why is it so hard to stimulate the economy?

Usually the limiting factor in stimulating an economy is how much inflation can a currency handle before the money being spent has a negative effect overall. But now we seem to have the opposite ...
3
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1answer
62 views

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. ...
3
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1answer
120 views

Connection between negative interest rates and negative bond yields

In an answer to one of my other questions: Why does falling global bond yields signal coming deflation, the answerer states: Whereas central banks set rates by policy, long term bond yields are ...
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3answers
1k views

Why does a stronger currency have a tightening effect on economic conditions?

http://www.economist.com/blogs/buttonwood/2015/12/central-bank-predictability Ever since 1987, banks have been willing to cut rates when markets have wobbled. Driving down bond yields has been an ...
3
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2answers
123 views

Fractional reserve banking and bank insolvency

I am trying to understand the fractional reserve banking system (with say 10 % reserve ratio). If a bank becomes insolvent because 100 % of the loans of a bank go bust, then who really becomes liable ...
3
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1answer
127 views

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 ...
3
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2answers
2k views

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 ...
3
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1answer
46 views

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 ...
3
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1answer
105 views

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) = ...
3
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1answer
149 views

Bank rate and Repo rate

Please explain the difference between Bank rate and Repo rate. Do the Bank and Repo rates affect each other?
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0answers
7k views

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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2answers
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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2answers
65 views

Are quantitative easing and helicopter cash really different tactics? And how does QE relate to Modern Monetary Theory?

I've been trying to get a clear understanding of exactly what economists mean by Quantitative Easing (QE). It seems to me that different people mean different things by it. I find simplistic analogies ...
2
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1answer
149 views

How does the Federal Reserve unwind the asset purchasing scheme announced in response to the 2020 Coronavirus Pandemic?

On Monday, 06 April, 2020 the Financial Times reported that the Federal Reserve balance sheet could increase to $9 trillion. This is partly due to the myriad of initiatives, some new, to protect the ...
2
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1answer
346 views

How is monetary policy fair in the current economy? [closed]

I've just read Money Creation in the Modern Economy, an article published by the Bank of England. This article brings about a lot of questions in my mind. This article talks about money being created ...
2
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1answer
110 views

Central Banks and Price Stability

Are there any empirical studies on the question of whether independent central banks cause price stability? I am seeking to understand if independence (of the central monitory authority) is part of ...
2
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1answer
140 views

Why did the Swiss National Bank end the currency peg?

The title says it all. Why did the Swiss National Bank end the currency peg? The issue obviously has many aspects, so I'm looking for a concise summary with references to explanations for each of ...
2
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1answer
456 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....
2
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1answer
244 views

Why do national governments not rent money from central banks directly? [closed]

The central bank gives money to the business banks, who then give that money to people, companies and government agencies/units. When a government controls the central bank, why doesn't the ...
2
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1answer
34 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 (...
2
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3answers
38 views

When the federal reserve buys bonds or other assets from banks, do the banks make a profit?

My understanding is that the federal reserve is injecting money in the market by buying bonds and debt from banks. Do the banks make a profit on the sale of their bonds or corporate debt to the feds?...