scholarly journals On the money creation approach to banking

2021 ◽  
Author(s):  
Salomon Faure ◽  
Hans Gersbach
Keyword(s):  
Monetary Policy ◽  
Commercial Banks ◽  
Central Banks ◽  
Capital Regulation ◽  
Bank Deposits ◽  
Central Bank Money ◽  
Money Creation ◽  
Asset Purchases ◽  
Bank Equity ◽  
Bank Money

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.

Lässt sich die Geldschöpfung der Geschäftsbanken noch kontrollieren? – Geldpolitik seit der jüngsten Finanzkrise 2007/2008

2018 ◽  
Vol 87 (3) ◽  
pp. 47-63
Author(s):  
Mathias Binswanger
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Interest Rates ◽  
Financial Crises ◽  
Commercial Banks ◽  
Central Banks ◽  
The Past ◽  
Monetary Authorities ◽  
Money Creation ◽  
Recent Financial Crisis

Zusammenfassung: Als Folge der jüngsten Finanzkrise ist der Einfluss der Zentralbanken auf die Geldschöpfung weitgehend verloren gegangen. Denn die Kontrolle über Reserven funktioniert nur solange, wie diese knapp sind und deren Bezug an bestimmte Bedingungen geknüpft werden kann. Seither halten die Geschäftsbanken in den ökonomisch wichtigsten Ländern de facto dermaßen viele Reserven, dass sie nicht mehr auf die jeweilige Zentralbank angewiesen sind. Diese Entwicklung lässt sich sowohl für die FED als auch für die EZB aufzeigen. Dies führt zu geldpolitisch neuen Herausforderungen, die bisher kaum beachtet wurden. Die Einflussmöglichkeit der Zentralbanken auf den Geldschöpfungsprozess der Geschäftsbanken wurde noch nie in so großem Stil ausgehebelt. Deshalb müssen Zentralbanken in Zukunft ihr Repertoire an geldpolitischen Massnahmen erweitern. Nur mit dem Drehen an der Zinsschraube wird man den Geldschöpfungsprozess in Zukunft kaum mehr in gewünschter Weise beeinflussen können. Summary: As a result of the recent financial crisis, the influence of central banks on money creation has largely disappeared. Controlling this process only works as long as money creation of commercial banks also leads to a need for additional reserves from the central bank. However, the large asset purchase programs of monetary authorities after the financial crises resulted in an enormous increase in reserves at commercial banks. Therefore, commercial banks have enough reserves to create additional money at large amounts and do not depend on central banks any more. This development is indicative for both the FED and the ECB. Therefore central banks face the challenge how they can restore their influence on the process of money creation. Just lowering or increasing interest rates, which was the major way of conducting monetary policy in the past, will not work anymore in the future.

scholarly journals Central Banks

2021 ◽  
pp. 11-28
Author(s):  
Ulrich Bindseil ◽  
Alessio Fotia
Keyword(s):  
Central Bank ◽  
Commercial Banks ◽  
Balance Sheet ◽  
Banking System ◽  
Central Banks ◽  
Reserve Requirement ◽  
Money Creation ◽  
Reserve Banking ◽  
Bank Money

AbstractThis chapter develops further the role of a central bank and its interplay with commercial banks. Together, the two ensure the provision of liquidity to the economy, such that the real sectors are shielded from flows of funds originating from household and investors. We also disaggregate the banking system into two banks to represent deposit flows between banks and their impact on the central bank’s balance sheet, and to distinguish between what we call “relative” and “absolute” central bank intermediation. We then integrate deposit money creation by commercial banks into our system of financial accounts, and revisit some old debates, such as the limits of bank money creation and the role of related parameters that the central bank can set (not only the reserve requirement ratio, but also the collateral framework). Finally, we explain the concepts of “plain money” and “full reserve banking” within the financial accounts, and also discuss in this framework the recent proposals regarding central bank digital currency (CBDC).

scholarly journals How Is Money Created?

2021 ◽  
pp. 17-46
Author(s):  
Bart Stellinga ◽  
Josta de Hoog ◽  
Arthur van Riel ◽  
Casper de Vries
Keyword(s):  
Monetary Policy ◽  
Commercial Banks ◽  
Central Banks ◽  
Money Creation

AbstractThis chapter describes how money is created. Many people mistakenly believe that money can only be created by governments or central banks. But money today is mostly – but not exclusively – created by commercial banks. This chapter describes the ways in which this is done, it outlines the forces that drive and constrain this means of money creation, and it discusses the role of monetary policy.

scholarly journals Digital Euro: A (Digital) Symbol of Progress and Integration in Europe

2021 ◽  
Vol 9 (1) ◽  
pp. 74-82
Author(s):  
Camelia Ignatescu ◽  
Raluca Onufreiciuc
Keyword(s):  
Central Bank ◽  
Central Banks ◽  
Bank Deposits ◽  
Distributed Ledger ◽  
Distributed Ledger Technology ◽  
Central Bank Money ◽  
If Current ◽  
Bank Money ◽  
Digital Assets ◽  
Digital Symbol

The emergence of crypto assets such as Bitcoin and Ether exposed a number of advantages that these digital assets based on distributed ledger technology (DLTs) can offer. As cash is becoming less and less popular in the eurozone, the European Central Bank (ECB) is currently looking at the scenario of creating a digital euro as a kind of central bank money that may be used by the general public. DLT may be used to tokenize central bank money via digital currencies (CBDCs) issued by central banks, as well as to digitally represent bank deposits. The purpose of this article is to analyse what are the solutions for the future digitization of the monetary and financial systems and if current CBDC projects and prototypes, including those by the Chinese and Swedish central banks and the attempts of the ECB, have the chance to succeed with or without DLT.

Money creation, debt, and justice

2021 ◽  
pp. 1470594X2199973
Author(s):  
Peter Dietsch
Keyword(s):  
Commercial Banks ◽  
Central Banks ◽  
Private Bank ◽  
Access To Credit ◽  
Financial Architecture ◽  
Theories Of Justice ◽  
Money Creation ◽  
The Creation ◽  
Interbank Lending ◽  
Alternative Designs

Theories of justice rely on a variety of criteria to determine what social arrangements should be considered just. For most theories, the distribution of financial resources matters. However, they take the existence of money as a given and tend to ignore the way in which the creation of money impacts distributive justice. Those with access to collateral are favoured in the creation of credit or debt, which represents the main form of money today. Appealing to the idea that access to credit confers freedom, and that inequalities in this freedom are morally arbitrary, this article shows how the advantage to those with collateral plays out in different ways in today’s economy. The article identifies several forms of bias inherent in money creation, and its subsequent destruction: loans from commercial banks to individuals and corporations, interbank lending, lending from central banks to commercial banks, and selective bail-outs by central banks. These are not mere inequalities: they are unjust since alternative designs of the financial architecture exist that would significantly reduce them. The paper focuses on one possible reform with the potential to address several of the types of bias identified, namely the separation of money creation from private bank credit.

Prices may rise if lending picks up in major economies

2020 ◽  
Keyword(s):  
Monetary Policy ◽  
Stock Market ◽  
Crisis Response ◽  
Stock Market Volatility ◽  
Monetary Aggregate ◽  
Content Type ◽  
Excess Reserves ◽  
Central Bank Money ◽  
Pass Through ◽  
Bank Money

Significance Similar fears accompanied the 2008-09 anti-crisis response, but did not come true. The main reason is that, while quantitative easing and other measures boost the monetary base (M0), inflation is more likely to be fired by strong growth in the broadest monetary aggregate (M3); so far, there has been limited pass-through from M0 to M3. Impacts Central bank money supply is underwriting stock market gains, an intended monetary policy outcome; but stock market volatility is rising. If higher inflation does occur, central banks have the tools to control it; indeed, rising prices has been a central monetary policy goal. If inflationary pressures do appear, reducing the large volumes of banks’ excess reserves will require adroit management.

scholarly journals Commercial Bank Money, Seigniorage, and the Macroeconomy

2018 ◽  
Author(s):  
Biagio Bossone
Keyword(s):  
Commercial Bank ◽  
Commercial Banks ◽  
Equilibrium Prices ◽  
Different Types ◽  
Money Creation ◽  
Fractional Reserves ◽  
Macroeconomic Implications ◽  
The Impact ◽  
The Relationship ◽  
Bank Money

This article evaluates the macroeconomic implications of commercial bank seigniorage, which emerges from the commercial banks’ power to create money in a fractional reserves regime. After evaluating the impact on aggregate output of commercial bank money relative to alternative exchange arrangements, the article identifies the determinants of commercial bank seigniorage and analyzes how equilibrium prices are determined in an economy where commercial banks extract seigniorage. The article also identifies the conditions under which commercial banks extract seigniorage, clarifies the relationship between seigniorage from commercial bank money creation and profits from pure financial intermediation, and shows how commercial bank seigniorage changes with different types of interbank payments settlement.

scholarly journals The Role of Capital Regulation and Risk-Taking by Banks in Monetary Policy

2014 ◽  
Vol 5 (1) ◽  
pp. 7-26
Author(s):  
Małgorzata Olszak
Keyword(s):  
Monetary Policy ◽  
Risk Taking ◽  
Financial Stability ◽  
Central Banks ◽  
Output Growth ◽  
Capital Regulation ◽  
Bank Capital ◽  
Endogenous Factors ◽  
Credit Cycle

The credit boom prevailing in the period preceding the last financial crisis was prolonged and associated with neither particularly strong output growth nor rising inflation in economies in which it occurred. This type of credit cycle and financial cycle is hard to reconcile with existing economic theory applied in monetary policy. In this paper we point out to endogenous factors behind this phenomenon. We aim to identify what is the role of bank capital regulation and bank risktaking in the transmission mechanism of monetary policy. The transmission of monetary policy impulses through capital channel is a diversified process, and depends on bank specific, background macroeconomics’s specific and other factors. Bank capital standards affect the banks’ perception, management and pricing of risks. In this area, monetary policy is also of great importance, with prominent role of the so called risk-taking channel in which central banks actions have an impact on bank risk attitudes. Consequently monetary policy is not fully neutral from a financial stability perspective. Stable level of inflation does not guarantee the stability of financial system. Therefore central banks in their conduct of monetary policy should constrain the build-up of financial imbalances.

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