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.

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 Money's Past is Fintech's Future: Wildcat Crypto, the Digital Dollar, and Citizen Central Banking

2019 ◽  
Author(s):  
Robert C. Hockett
Keyword(s):  
Monetary Policy ◽  
19Th Century ◽  
Central Banks ◽  
Central Banking ◽  
Private Bank ◽  
New Era ◽  
The People ◽  
Lending Rate ◽  
Payments Systems ◽  
Interbank Lending

I argue that crypto-currencies will soon go the way of the ‘wildcat’ banknotes of the mid-19th century. As central banks worldwide upgrade their payments systems, the Fed will begin issuing a ‘digital dollar’ that leaves no licit function for what I call ‘wildcat crypto.’ But the imminent change heralds far more than a shakeout in ‘fintech.’ It will also make possible a new era of what I call ‘Citizen Central Banking.’ The Fed will administer a national system of what I call ‘Citizen Accounts.’ This will not only end the problem of the ‘unbanked,’ it also will simplify monetary policy. Instead of working through private bank ‘middlemen’ that it hopes will lend QE money to borrowers during a downturn, the Fed will be able to do ‘helicopter drops’ directly into Fed Citizen Accounts. And rather than rely solely on interbank lending rate hikes or countercyclical capital buffering during periods of froth, the Fed will be able to impound money through the more ‘carrot-like’ measure of interest credited to those accounts. We are at last on the verge of establishing a true ‘Fed for the People.’

Commercial Banks

2017 ◽  
Author(s):  
Stefan Homburg
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Great Recession ◽  
Commercial Banks ◽  
Central Banks ◽  
The Great Recession ◽  
Term Structures ◽  
Market Interest Rate ◽  
Money Creation

Chapter 7 introduces commercial banks as creators of money and integrates them into the general equilibrium framework. The motivation to deviate from the standard approach that neglects commercial banks and entrusts all money creation to a central bank is twofold. First, apart from currency, central banks do not provide money directly but rather supply reserves that enable banks to create deposits. After the Great Recession, this transmission process staggered: increases in reserves outpaced increases in deposits. Any analysis of the monetary expansions starting in 2008 would remain incomplete and unsatisfactory unless it took account of this fact. Second, central banks normally control an overnight interbank interest rate that differs from the market interest rate on bonds. Considering an interbank market and its relationship with the bond market makes it possible to derive a term structure of interest rates. This is important because inverse term structures are good predictors for recessions.

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 Study of Credit Risk Identification Techniques Followed by Commercial Banks in Nepal

2017 ◽  
Vol 2 (2) ◽  
pp. 1-17
Author(s):  
Indra Kumar Kattel
Keyword(s):  
Credit Risk ◽  
Commercial Banks ◽  
Joint Venture ◽  
Swot Analysis ◽  
Risk Identification ◽  
Risk Level ◽  
Private Bank ◽  
Significant Difference ◽  
Identification Techniques ◽  
Tools And Techniques

 The main purpose of this study is to explore the current credit risk identification techniques used by Nepalese commercial banks. A questionnaire was developed and surveyed to 9 commercial banks operating in Nepal. This paper attempts to ascertain the perceptions of Nepalese bankers about the importance of credit identification techniques and the practice of various tools to identify the risk related with the borrowers. The result of the study indicates that the Nepalese bankers are aware of the importance of various techniques to effectively identify the risk level. Furthermore, the Nepalese commercial banks have used various techniques like interview, root cause effect, check list analysis, Strength, Weakness, Opportunity and Threat (SWOT) analysis, scenario analysis, expert judgment, simulation, stress testing etc. In addition, there was significant difference between all three categories of bank, namely State-Owned bank with Private Bank, State-Owned bank with Joint Venture Bank, and Joint Venture Bank with Private Bank in terms of tools and techniques used for credit risk identification.

scholarly journals Securitization of (bad) loans to Italian SMES: The role of the public guarantee

2021 ◽  
Vol 16 (4) ◽  
pp. 193-208
Author(s):  
Lucilla Bittucci ◽  
Stefano Marzioni ◽  
Pina Murè ◽  
Marco Spallone
Keyword(s):  
Financial Stability ◽  
Positive Impact ◽  
Central Banks ◽  
General Purpose ◽  
Recent Past ◽  
Balance Sheets ◽  
Access To Credit ◽  
The Public ◽  
Main Factors

This study investigates the main factors driving the evolution of the securitization of loans to Italian small and medium-sized enterprises (SMEs). The value of securitization increased in last two years, even though it has not been used as collateral for central banks. The disposal of non-performing loans (NPLs) may have been rather triggered by increasing attention of the international institutions to such an issue, within the general purpose of financial stability. The purpose of this paper is to interpret such a phenomenon focusing on Italian banks and restricting the analysis to the case of securitizations backed with loans to small and medium-sized enterprises (SMEs). The interesting result that emerges, supported by econometrically tested empirical evidence, is that given the orientation of international financial institutions, such as the ECB and the EBA, and reacting to incentives coming from the fiscal policy authorities for the public guarantee of loans, banks have been using securitization to reduce the burden on their bad balance sheets due to (NPLs). It was found that the public guarantee had a positive impact on SME securitization, whereas securitization in other sectors has not been affected significantly. Such evidence suggests that, in the absence of a public guarantee, the financial stability target would have been at risk, and the effectiveness of collateral-based policies in the recent past must be improved to enhance access to credit for SMEs.

scholarly journals Savings Level Determinants and Sustainability of Commercial Banks in Rwanda: A Case of I&M Bank Rwanda

2022 ◽  
Vol 6 (1) ◽  
pp. 10-27
Author(s):  
Aimable Nshimiyimana ◽  
◽  
Eugenia Nkechi Irechukwu ◽  
Keyword(s):  
Interest Rates ◽  
Commercial Banks ◽  
Financial Institution ◽  
Secondary Data ◽  
Income Level ◽  
Access To Credit ◽  
Credit Score ◽  
Descriptive Research ◽  
Specific Objective ◽  
Finance Department

The purpose of this study was to investigate the effect of savings level determinant on sustainability in I&M Rwanda. The specific objectives were to establish the effect of interest rate, income level and access to credit on the sustainability of I&M Bank. This study implemented a descriptive research design and utilized coefficient of correlation to assess the effect of each specific objective on the sustainability of the Bank. The population comprised of 12,057 including 12,050 customers and 7 staff of finance department of I&M Bank Rwanda. A sample size of 99 was calculated using Yamane (1967) simplified formula. To accomplish this aim, both primary and secondary data are used. The researcher used simple random and purposive sampling techniques. A questionnaire and interview have used to collect data. Quantitative data was obtained using questionnaire while a financial statement of I&M Bank covering 2016-2020 was used as secondary data. Descriptive and inferential statistical analysis showing mean, standard deviation, correlation and regression was used statistical Package for Social Sciences (SPSS) version 26.0 to analyze statistical information while content analysis used to analyze qualitative information. The findings and recommendations for this study addressed to the I & M Bank Rwanda, for decision-making and policies. The study found that interest rates, income level and access to credit have significant positive effect on sustainability of commercial banks in Rwanda at 78%, 90.5% and 92.9% respectively. The relationship among saving level determinants and sustainability of business bank was also determined to be linear with increase in get admission to credit score by means of clients. The researcher concluded that saving degree and get admission to credit volatility had more effect on sustainability of banks. The study endorsed that guideline to be installed vicinity to boom financial institution lending and ensure monitoring the same. Keywords: Savings Level Determinant, Sustainability, Commercial Banks, I&M Bank, Rwanda

Money creation in the modern economy: an appraisal

2021 ◽  
Vol 9 (1) ◽  
pp. 43-60
Author(s):  
Jacob Stevens ◽  
Keyword(s):  
Central Bank ◽  
Money Supply ◽  
Central Banks ◽  
Quantitative Easing ◽  
Digital Currency ◽  
Modern Economy ◽  
Money Creation ◽  
Floor System ◽  
Selection Of

This paper models a representative bank, and uses this model to explore the assumptions and implications of a selection of money-creation theories. It is shown that the money-supply process tends toward the logic of exogeneity as banks' fears about liquidity stress increases. At present, banks do not fear liquidity stress because central banks are operating under a floor system with a superabundance of reserves following unsterilized quantitative easing. Secondly, a role for a ‘central-bank digital currency’ is suggested as a useful complement to reserves policy in an economy with large or collusive banks.

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