Money Creation: Genesis 3: Bank Deposits

AbstractWe study today’s two-tier money creation and destruction system: Commercial banks create bank deposits (privately created money) through loans to firms or asset purchases from the private sector. Bank deposits are destroyed when households buy bank equity or when firms repay loans. Central banks create electronic central bank money (publicly created money or reserves) through loans to commercial banks. In a simple general equilibrium setting, we show that symmetric equilibria yield the first-best level of money creation and lending when prices are flexible, regardless of monetary policy and capital regulation. When prices are rigid, we identify the circumstances in which money creation is excessive or breaks down and the ones in which an adequate combination of monetary policy and capital regulation can restore efficiency. Finally, we provide a series of extensions and generalizations of the results.

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The end of Alchemy of Finance and Sovereign Money (on the books by M. King “The end of Alchemy: Money, Banking and the Future of the Global Economy” and by J. Huber “Sovereign Money. Beyond Reserve Banking”)

Voprosy Ekonomiki ◽

10.32609/0042-8736-2017-12-131-141 ◽

2017 ◽

pp. 131-141 ◽

Cited By ~ 2

Author(s):

V. Yefimov

Keyword(s):

Economic Policy ◽

Central Bank ◽

Institutional Theory ◽

Money Supply ◽

Government Spending ◽

Global Economy ◽

Private Banks ◽

Money Creation ◽

Ministry Of Finance ◽

Reserve Banking

The review discusses the institutional theory of money considered in the books by King and Huber, and the conclusions that follow from it for economic policy. In accordance with this theory, at present the most of the money supply is created not by the Central Bank but by private banks. When a bank issues a loan, new money is created, and when the loan is repaid this money is destructed. The concept of sovereign money involves the monopoly of money creation of the central bank. In this case the most of newly created money is handed over to the ministry of finance to implement government spending.

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The world and Russia: Inflation is minimal, economic growth is slowing, risks are rising

Voprosy Ekonomiki ◽

10.32609/0042-8736-2019-12-5-23 ◽

2019 ◽

pp. 5-23 ◽

Cited By ~ 2

Author(s):

Mikhail V. Ershov ◽

Anna S. Tanasova

Keyword(s):

Economic Growth ◽

Financial Markets ◽

World Economy ◽

Domestic Demand ◽

New Combination ◽

Russian Economy ◽

The World ◽

World Economic ◽

Money Creation ◽

Main Factors

Russian economy has reached the low level of inflation, but economic growth has not accelerated. Moreover, according to official forecasts, in the following years it will still be low. The article concludes that domestic demand, which is one of the main factors of growth, is significantly constrained by monetary, budgetary and fiscal spheres. The situation in the Russian economy is still hampered by the decline of the world economic growth. The prospects of financial markets are highly uncertain. This increases the possibility of crisis in the world. Leading countries widely use non-traditional measures to support their economies in the similar environment. In the world economy as well as in Russia a principally new combination of factors has emerged, which create specific features of economic growth. It requires special set of measures to stimulate such growth. The article proves that Russian regulators have large unused potential to stimulate growth. It includes monetization, long-money creation, budget and tax stimuli. It is important that the instruments, which will be used, should be based on domestic mechanisms. This will strengthen financial basis of the economy and may encourage economic growth. Some specific suggestions as to their use are made.

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