Money creation
Money creation, sometimes also called as regards the creation of bank money money creation, is the process of creating new or additional money. This base money is by the institution of currency monopoly, which is a central bank usually emitted. In addition, in a reserve system book money from commercial banks is drawn through lending. The creation of money is different minimum capital requirements, refer to the probability of failure of respective balance sheet items ( risks), regulated. In a full- reserve system, however, only base money is emitted.
While historically considered additional emission of coins according to the quantity theory increased the money supply, this is now by additional base or deposit money as is the case, if not take place elsewhere in the banking system credit sum repayments.
- 2.1 Control of the central role
- 3.1 Interbank lending and clearing
- 3.2 Cash 3.2.1 cash
Money creation by the central bank
Purchase assets
The Central Bank may acquire central bank money through the purchase of assets such as foreign exchange, real estate, precious metals or securities from the commercial banks or on the stock exchanges and credits in return book ( open market ). In "Liquidity afferent ," i.e. additional central bank money -generating transactions, the commercial banks obtain central bank money for which credit has been credited to their accounts with the central bank.
Central bank money
The money created by the central bank is composed of the umlaufenen banknotes and coins and the demand deposits of banks with the central bank. This sight deposits at the Central Bank ( central bank money ) allows the central bank to commercial banks against provision of collateral and payment of an interest rate one - similar loans from the commercial banks to non-banks ( enterprises, private households, public sector ).
While the amount of cash determined solely by the cash needs of the commercial banks, the central bank can control the amount of demand deposits by the lifts required by the commercial banks interest rate or lower. Because commercial banks are obliged to turn to secure the loans granted by them by the credit balance at the central bank (so-called reserve requirements ). This balances with the Central Bank they receive through refinancing operations, ie by loans they receive from the central bank for its key interest rate. Lowers the central bank this rate, banks can turn to non-banks to offer ( companies, private households, public sector ) cheaper credit, thus increasing the demand by non-banks for loans. The resulting increased lending by commercial banks in turn, that the commercial banks in turn are on a higher minimum reserve with the central bank and thus the amount of central bank money is increased.
Some central banks, such as the Eurosystem, but interest on reserve balances of banks, namely at interest rates that are identical to the interest rates that banks pay for the refinancing operations. In this way it is ensured that the reserve requirement has only monetary base control function, but does not generate costs for the commercial banks.
Since establish in this mechanism at the same time, commercial banks money by providing opportunities for non-bank demand deposits, the demand deposits of commercial banks with the central banks only a few money supply definitions is detected. The Swiss National Bank recognizes the circulating cash and balances with central banks under " M0: Central bank amount".
Trade with central bank balances between the central bank and commercial banks is handled in the form of so-called open market operations. To control the central bank, various funding instruments available that differ in short-term and longer-term instruments.
Money creation by commercial banks
Create the commercial banks by lending additional deposit money initially, tend to increase their demand for central bank money.
Controlling role of the Central Bank
The central bank, the interest rates and other terms ( discount policy ), at which the commercial banks can obtain central bank money to adapt, and thus affect the money creation process by the commercial banks. Because if she / expensive assigns central bank credit at all or low, the commercial banks can still cheaper / more expensive awarded credit ( even if they run off more credit than they awarded ), whereby the loans offered by commercial banks so far does not have to cancel.
The money supply function by the central bank are, however, by the nature of the fiscal policy of the government and by the respective amount of the loan demand (especially in declining net borrowing due to increased consolidation efforts ) the private, set limits: For the control function of the central bank problematic are the contrasting pairings restrictive monetary policy / Expansionary fiscal policy and vice versa Expansionary monetary policy / restrictive fiscal policy.
Money creation and destruction of money ( " active-passive at stimulating " and " reduction" )
The money supply can be multiplied by the net lending or purchase of assets ( through the respective bank ) to non-banks ( private, state). By repaying loans or sale of assets by banks ( non-bank ) money is again destroyed (the bank balance shortened ) - the amount of money reduced.
Interbank lending and clearing
Central bank money is used for settlement of transfers between commercial banks ( clearing balances ) and can not be drawn, of course, by the commercial banks. This results in eventual liquidity problems of some banks.
Means of payment
But for those who ( a bill ) have outside the banking system on a bill, this is not primarily promissory note ( an opposing part of an obligation ), but also cash, a store of value or speculative funds ( in cash management / education of savings or engage in financial transactions ).
Cash
The issue of money is made to the population of a currency area through the banking system. Money is created by the cooperation of central banks, commercial banks and non-banks. Among the non-banks include all companies ( not banks ), private households and the public sector.
Basically, cash comes ultimately always by lending or the purchase of assets by commercial banks and subsequent withdrawal of accounts on the market. An exception to this are minted by the State coins and in Germany the direct cash payment of 40 D- Mark by local governments in each country's citizens as entry fee for the currency reform in 1948.
The requested from the bank public in commercial banks cash is issued by the Central Bank in the form of paper money, which may relate to the central bank at the expense of their balances of central bank money to commercial banks. Banknotes are thus made visible central bank money; Therefore, the issue of banknotes in most cases is no central bank money creation, since the underlying central bank money has already been before, in the development of the credit balance of the commercial bank, drawn from the central bank. Coins are minted only by the State, with a seigniorage revenue ( seigniorage, ie the difference between the nominal value and production costs) arises.
Central Bank Credit to general government
The direct lending to the public sector by the central bank is prohibited in the euro area since the second stage of the European Monetary Union in 1994, that is, the state must borrow money from commercial banks or the bond market. However, the European Central Bank intervened daily inter alia, the bond market, and preferably buys government bonds in addition scooped money if the current yield will be reduced. In the U.S., for example, on 17 November 2004 made the heading " U.S. Treasury " of even 89.3 % of the total assets of the Federal Reserve System. This means that the U.S. central bank money, which also includes the circulating cash part is almost entirely covered by the U.S. national debt. However, the amount of central bank money (M0 ) is only a fraction of the total money in circulation.
History
The creation of money has always been an essential element of monetary policy. In the history of money, the existing monetary system was always different. Only paid with primitive money later with coins. Additional money was therefore issued only in relation to an additional reduction of corresponding precious metals like gold and silver.
With advent of Münzregals the creation of money was only reserved to the State. On counterfeit money or independent coinage was a high penalty. In certain periods, many coins were minted by Münzentwertung. The issue of bank notes did not change anything on these matters. From then on, however, it was possible in some cases that note banks also gave also about the personal deposit slips or bank notes. Some institutions secured from about guilds.
In addition, savings banks and cooperative banks that henceforth granted loans originated. The banknote monopoly also gradually fell into the hands of the state, so the number of currencies decreased. In the history of money, phases resolved ( unterpfändetes material such as gold or gold exchange standard ) with " fiat money systems " (also a result of war financing) from numerous intrinsic money.
Reception
In an interview with the Frankfurter Allgemeine Zeitung in 2009 interpret Josef Ackermann and his doctor father, Hans Christoph Binswanger Johann Wolfgang von Goethe's Faust. The second part of tragedy. They illuminate the magic that put in the creation of money, and the ambivalence of the created to the proposal Mephistopheles money in its effect by the bet on the time with the risk of triggering inflation and greed, violence and greed, the " apprentices Raufebold, Have Bald and holding hard " to attract them. Even with the change of fief, which must be treated with care, to the property that you " use, but also consume, plunder, destroy " can and this triggered omnipotence dreams of man ( in the person of Faust ) is dealing Goethe, who in the work of its economic experiences of ten years be processed as financial and economic ministers at the Weimar court and his extensive studies of economics. However, Ackermann also warns a return to the gold standard would mean a very strong reduction in the quantity of money and would have serious disadvantages. He also points out: " But you must be a case also be aware that with less money creation and growth less likely also the general prosperity will be lower. "
Within economics, monetary theory sets apart the theory of money and part of the credit theory with his creation. There are doing different monetary systems. Within orders with a coinage or banknote monopoly the base money is automatically allocated by granting monopoly within a State by law an institution, usually a central bank. This compares to the free banking, which calls for no privileges or restrictions for banks. Gresham's law is to provide for the displacement of " bad money ". Furthermore, one distinguishes between reserve systems and full- reserve systems. A distinction is made between a reserve set and a full reserve. In order to ensure monetary stability, which is a monetary policy from emergencies. The findings of Knut Wicksell ( Wicksell shearing process ) have still substantial influence on monetary policy decisions.
To ensure a stable (not sinking ) to ensure demand within the respective currency area over the economy, ( economic withdrawn ) on the one hand to balance savings and on the other hand an accounting perspective destroyed ( by loan repayments ) money supply. With regard to economic growth Alexander Mahr even declared: "It is almost to the requirements of a fault-free growth process that the investments are higher than the savings as, where is financed More on investment by extending the cash in circulation. "