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.

Filter by
Sorted by
Tagged with
2
votes
1answer
36 views

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 ...
2
votes
1answer
43 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
votes
3answers
40 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?...
2
votes
1answer
89 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 ...
2
votes
1answer
45 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 ...
2
votes
1answer
278 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
votes
2answers
76 views

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 ...
2
votes
1answer
351 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 ...
2
votes
3answers
152 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
votes
1answer
83 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 ...
2
votes
1answer
258 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?
2
votes
2answers
56 views

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 ...
2
votes
1answer
52 views

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 ...
2
votes
1answer
60 views

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 ...
2
votes
1answer
34 views

Who holds the Reverse Repo and Repo respectively in a Repurchase Agreement?

According to investopedia.com in this definition A reverse repurchase agreement, or "reverse repo", is the purchase of securities with the agreement to sell ...
2
votes
2answers
73 views

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 ...
2
votes
1answer
46 views

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, ...
2
votes
2answers
63 views

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 ...
2
votes
1answer
63 views

ECB bond buying from national banks, what are the national banks expected to do?

The European Central Bank announced plans to buy government bonds from national banks. Quantitative Easing, 60 billion euros a month. Although ultimately I am trying to make a decision on what this ...
2
votes
1answer
34 views

What measure of unemployment is used by central banks to find out whether the rate of unemployment is below the natural rate of unemployment?

Having an unemployment rate below the natural rate of unemployment (NRU) leads to wage inflation and a reduction in productivity. Seeing the consequences of that, and knowing that one of the roles of ...
2
votes
0answers
18 views

Does a rate hike by the Central Bank increase or decrease inflation?

Mainstream economic theory tells us that, in order to decrease inflation, the CB increases its rates so as to decrease loan creation which should decrease Aggregate Demand and thus lower inflation. ...
2
votes
0answers
19 views

Do (any) governments or central banks have an explicit or econometrically probable policy to “prop up” stock market prices?

This assumption (that governments [in the a broad sense of the term] prop up stock prices deliberately) has been taken as a given/assumption in another question here. Is there evidence that they ...
2
votes
0answers
14 views

Is there a clear timeline of ECB/Eurosystem's changes to the defintion of M3 (with regard to repos)?

I found that circa 2012 the ECB/Eurosystem changed their definition of M3 to exclude at least some repos, which previously were included. According to a 2014 Bundesbank publication, the change ...
2
votes
0answers
46 views

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 ...
2
votes
0answers
79 views

Can the central bank interest rate policy still control inflation?

Historically, central banks have been using interest rate policy to control inflation. In current times, most rates have been going ever lower, but it seems to be incapable of driving inflation up. ...
1
vote
2answers
263 views

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, ...
1
vote
2answers
60 views

Is it theoretically possible for a singular national currency to exist under a free banking system?

Free Banking is a proposed monetary system, usually by Austrian Economists, as an alternative to the prevalent Central Banking system. Under this arrangement, commercial banks would issue their own ...
1
vote
1answer
166 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 ...
1
vote
2answers
87 views

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 ...
1
vote
2answers
128 views

The independence of Central Banks [closed]

How do such digital currencies such as Bitcoin affect the independence of Central Banks? Thank you
1
vote
2answers
516 views

Why currency purchasing power is linked to confidence in central banks

From the New Statesman, http://www.newstatesman.com/politics/economy/2016/02/coming-storm, "Ever since the collapse of the Bretton Woods system of pegged exchange rates in 1971, the sole guarantee ...
1
vote
1answer
40 views

How would privately minted coins enter circulation?

I read a great article about private minting in early America that talks about some of the private minters whose copper, silver, and gold coins were widely circulated throughout the country without ...
1
vote
1answer
117 views

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 ...
1
vote
2answers
125 views

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 ...
1
vote
2answers
756 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 ...
1
vote
1answer
4k views

Why did the Fed raise interest rates between 2004 and 2006?

Between June 2004 and August 2006, the Fed raised interest rates again and again, because they were "...growing more uncomfortable about inflation". Looking at the graph below, inflation did increase,...
1
vote
2answers
98 views

Can banks maintain Euro accounts if the country they're in leaves the eurozone?

If a country forcibly leaves the Eurozone, is it possible for banks within this country to maintain existing euro deposits? Or does leaving the eurozone mean those deposits are automatically ...
1
vote
1answer
49 views

Are there western governments that don't have to borrow in their own currency?

Are there any western and/or democratic countries where the central bank buys all government debt, interest free, directly from the treasury? I.e. are there any such countries where government ...
1
vote
1answer
26 views

How does QE effect the collaterals?

For instance, the ECB accepts green bonds as collateral. And also they are more likely to include green bonds in a QE program. Does this face make a green bond more valuable? How would it work in a ...
1
vote
1answer
28 views

Are FedWire transfers and volume tracking exchanges of reserves between banks that have accounts at the Federal Reserve?

Looking at Fedwire® Funds Service - Monthly Statistics it appears that these transactions are between banks but I'm trying to confirm is whether the stuff they are exchanging is classified as reserves....
1
vote
1answer
46 views

How a countries interest rate (official cash rate in NZ) and inter-bank network determines retail interest rates?

In New Zealand, there is the OCR, which is the rate at which retail banks borrow from the central bank (https://www.nzherald.co.nz/nz/news/video.cfm?c_id=1&gal_cid=1&gallery_id=213767) ...
1
vote
2answers
68 views

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 ...
1
vote
1answer
137 views

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 ...
1
vote
1answer
74 views

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 ...
1
vote
1answer
100 views

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 ...
1
vote
1answer
57 views

How monetary policy affects bank reserves

In discussions of the "credit channel" in the transmission of monetary policy, I've read that increasing the policy rate reduces bank reserves. Can someone explain how this happens?
1
vote
1answer
66 views

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 (...
1
vote
1answer
6k 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 ...
1
vote
1answer
1k views

How much leverage has the Federal Reserve taken on today (Jan 2016)?

http://nymag.com/daily/intelligencer/2015/12/big-short-genius-says-another-crisis-is-coming.html?mid=twitter-share-di What makes you most nervous about the future? Debt. The idea that growth will ...
1
vote
1answer
66 views

Fractional Reserve Banking

Highly contrived example with 3% reserve ratio: ...