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
905 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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3answers
2k views

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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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 ...
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5answers
982 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
150 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 ...
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3answers
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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 ...
6
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3answers
114 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 ...
6
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1answer
407 views

Why hasn't Quantative Easing created a surge in inflation, or hyperinflation?

From what I understand, Quantitative Easing (QE) is the buying, by the Central Bank, of bonds and other financial assets with high-powered money (or money created by the CB for this purpose). If I ...
6
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1answer
305 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
121 views

Who regulates the balancing of the books for commercial banks and how is this done? 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 ...
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1answer
305 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 ...
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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 ...
5
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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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7answers
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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 ...
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1answer
6k 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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2answers
263 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 ...
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4answers
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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
676 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
328 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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1answer
165 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 ...
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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
60 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 ...
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3answers
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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 ...
3
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1answer
311 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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2answers
53 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
142 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
59 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
112 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
116 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
124 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 ...
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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
45 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 ...
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1answer
101 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) = ...
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1answer
137 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
5k 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
1k 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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3answers
710 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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1answer
104 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 ...
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3answers
612 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, ...
2
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1answer
139 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
140 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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1answer
242 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 ...
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1answer
45 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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1answer
36 views

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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1answer
142 views

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. ...
2
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1answer
299 views

Is there any scientific proof that 2%-3% target inflation rate is ideal?

There are a couple of central banks (RBA, Federal reserve for example) that use inflation rate as a key indicator to regulate their official cash rates. Those target inflation rates usually range ...
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3answers
147 views

What stops a government in partnership with its central bank from lowering interest rates and then borrowing at this lower rate to fund investments?

For example, in the UK, after the Brexit vote, the Bank of England decided to lower reserve interest rates to 0.25%. This, as I understand it, has the knock on effect of lowering the interest rates of ...
2
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1answer
68 views

Gold and loss of faith in central banking

In this article here, http://www.telegraph.co.uk/investing/gold/gold-resurgence-whos-buying-gold-and-why/ , it states that "gold tends to do....best when markets lose faith in central banking". I ...
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1answer
246 views

Why are the 10 year German bunds and 10 year US treasury yield highly correlated?

And when the ECB started QE this year, the 10 year bunds rate naturally plummetted, but so did the 10 year US treasury rate. What fundamental reason could cause the US rate to drop in synchrony?