# Tag Info

25

I think there are a few separate issues here. First, semantics: if an institute doesn't let you deposit money into your account, I think we'd be hard-pressed to call it a "bank". This really doesn't matter to the fundamental aspect of your question, but I think it's of some use. Because a "bank" has to allow deposits (at least by a naive ...

9

This isn't the first time I've seen people claim that this Bank of England article says banks don't need to take deposits, but in fact the article actually says the opposite. In order to make loans banks do need to take deposits or borrow money some other way: By attracting new deposits, the bank can increase its lending without running down its reserves [.....

7

I think this perhaps seems/reads like a theoretical chicken-and-the-egg scenario, but IMO it's not really. The reality is just that fiat currency is like magic, and created out of nothing. Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits Central Banks print fiat currency. Pieces of paper ...

6

There are several reason for it. Please note the reasons are not necessarily listed in order of importance, the last point is actually most relevant answer to your question. The 'Evidence' You Cite is Controversial First, in fact the work you cite itself states that this issue is matter of ongoing controversy (Werner, 2014). So it is far from settled. ...

6

Does Adam Smith ... support a Central Bank/Federal Reserve? Adam Smith was firmly in favor of central banking (although not necessarily in the same way as understood today). In Chapter 3 Book 4 of The Wealth of Nations he writes: “In order to remedy the inconvenience to which this disadvantageous exchange must have subjected their merchants, such small ...

5

Banking is confusing, and a lot of explanations apparently make things worse. In this case, ignore whatever you read, and go back to first principles. By definition: balance sheets must balance. Assets have to be matched by liabilities or equity. However, one defining characteristic of banks is that they have a small percentage of their balance sheets as ...

5

Is it true that the Federal Reserve is not Federal and has no reserves? Both claims are blatantly false. On Reserves Fed literally has power to create new reserves for other banks or for its own spending from nothing. Not only, Fed obviously has reserves which you can easily confirm just by looking at a data (see Fed data on amount of reserves held), but it ...

4

how could bad harvest season make the Central bank to increase in key rate? At the beginning of 1800s Britain still roughly $36\%$ of a employment and $33\%$ of British GDP was generated by agriculture (see Grigg 1992). Hence shock to agricultural output could easily lead to recession and have widespread economic effect. Given what large role agriculture ...

4

Have a look at CentralBankNews.info.

3

Is it possible for India to have a Free Banking arrangement with one singular national currency? Under free banking you would only end up with single currency if one bank manages to become a monopoly on issuing the currency. That is possible, although at least historically it did not occurred under free banking systems. Also this would be in essence ...

3

Demand deposits might be cheaper, but they can disappear due to withdrawals. Banks also need stable sources of longer-term funding to match against their illiquid assets. Holding reserves is only of limited economic importance relative to the need to widen funding sources. CD’s are cheap relative to other sources of term funding. It would be very hard to ...

3

I am unsure about the American situation, but I learned a bit of history about token issuance in pre-Confederation Canada. These comments are based on the notes in a token collector guide. Since they were privately issued, they would be called “tokens” and not “coins,” as that was reserved for governmental issuance. In the Canadian colonies, there was a ...

3

An individual bank needs deposits, other liabilities, and equity to fund loans so it will attract deposits using deposit attracting strategies. Some loans are never taken out as currency. A vendor might be selling an investment or a consumption item to a borrower. In that case the lender creates an asset which is the borrower's debt. If the spending is ...

2

Banks do not make matching deposits into central banks, other than in a hypothetical 100% reserve system. As such, the answer is “no”. What happens is that the private bank has a liquidity inflow, and it would need to find a corresponding asset, normally a money market instrument. The yield on that instrument is likely negative, but the “negative interest” ...

2

If, as part quantitative easing, a central bank buys government bonds, it might affect prices of other assets positively via arbitrage and the so-called portfolio rebalancing effect. There are obviously several factors at play, but I focus on that one. If there is more demand for government bonds via QE, bond prices increase, and their yields fall. Assume ...

2

There is good summary (with references) of the benefits of CBDCs on Wikipedia. With respect to banking sector disruption see this 2018 report by the Sveriges Riksbank. It finds that while a given outflow of retail deposits into e-krona reduces banks’ liquidity portfolios and worsens their funding profiles, banks can normally control this outflow via deposit ...

2

Yes, if green bonds are accepted as collateral they become more valuable/demanded by prospective buyers. When ECB directly buys these as part of QE then again they are more in demand. When demand shifts to the right and supply stays the same price increases. In real life, ECB could just buy these green bonds on the market as part of their QE, for example, ...

2

You have different questions in your title and body I will try to answer them separately: Are there western governments that don't have to borrow in their own currency? Yes, all western governments that I know of are allowed to borrow in any currency they want. They usually borrow in their own currency because it is easier for them to repay the debt if ...

2

The key to answering your question is to consider whether or not the bank that has just extended a new loan must make an interbank payment of reserves. So let bank A extend a loan 100 to customer 1. The bank debits loan assets for an increase 100 and credits deposit liabilities due to customer 1 for an increase 100. The bank balance sheet expands. Assume ...

2

The question in the title is actually a bit broader than the question in the body, I will try to answer both questions starting with the one in the title. Answer to Question in the Title Can banks 'create' money on their own or do they need help from other banks? Yes, banks actually can crate deposits on their own without help of other banks, thanks to ...

2

If these T-bills mature and are repaid then you are correct money supply will decrease. In fact that might be desirable. Just because central bank wants to increase money supply in one year that does not mean they will not want to decrease it at some further period. When the T-bill matures central bank also have option to then buy new T-bill to replace the ...

2

My question is that isn't the central bank only responsible for determining the interest rates? No, central banks do not even have directly responsibility to adjust interest rate. Depending on which country we talk about they will have responsibility to keep prices stable, high employment and bank regulation and often combination of the above. In order to ...

2

The movie over-simplifies the large banks' attitudes somewhat. In reality, they differed: some banks limited their exposure to junk debt (I will use this term because there was junk other than subprime mortgages involved). They'd buy up a little junk, repackage it into new instruments, and re-sell their instruments to clients. So their own exposure to the ...

2

The Treasury Department of the U.S. federal government sends the checks. Assume all such payments go to customers of commercial banks and add to their checking deposit balances. The short answer to the question is as follows. If Treasury uses debt management then on average it does not increase the M2 money supply as measured on the aggregate balance sheet ...

2

When the Fed buys a bond as part of a Quantitative easing program, they execute with Primary Dealers through a website interface. Hedge funds do not execute directly with the Fed, although they could execute with a Primary dealer who executes with the Fed. When the Fed executes with a primary dealer, it credits the account of the primary dealer using newly ...

2

Roughly speaking, say the central bank wishes to purchase £10 billion worth of bonds from non bank NB. NB will have an account with a bank B. The central bank cannot transfer reserves directly to NB so instead they give the reserves to B and instruct B to create £10 billion of demand deposits in NB's account. As you can see, and contrary to the belief of ...

2

MMT is propounding to be a theory. A theory can't be sustainable or unsustainable. However, I think you meant to ask if the policy proposals of MMT-ers would be sustainable so I will answer assuming that is your question. Now MMT is not a proper scientific economic theory* as it is not rigorously defined (Mankiw 2020), so it is not actually clear what MMT ...

1

There are many parts to this question, I will offer a minimal answer. The Treasury writes the checks. The Treasury is the fiscal arm of the Federal Government, which banks at the Federal Reserve - which is a bank. There are no reserves held against the Treasury’s funds - since the Federal Reserve does not hold reserves at itself. (Bank reserves are deposits ...

1

Although possible it is not necessary for several reasons. Optimal currency area (OCA) can in principle exist even without fiscal transfers/excessive borrowing if there is perfect factor mobility within the OCA that can absorb the asymmetric shocks that countries in the monetary union face (see De Grauwe Economics of Monetary Union). In the European ...

1

How China Influences the U.S. Dollar https://www.thebalance.com/how-does-china-influence-the-u-s-dollar-3970466 For export transactions to United States companies/consumers, Chinese firms typically receive dollars as payment for their exports. These firms then deposit the dollars into local banks, in exchange for yuan, which can be used to pay their ...

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