Creation of money

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creation of money is the production non-banks so by money by credit relations within the bank system as also between banks and mentioned (essentially Enterprise and private people). Control of the creation of money is task of the central bank of a country or a currency area.

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the bank system money from indebtedness and disappears again by repayment of debts. One calls these procedures creation of money and money destruction.

The expenditure of money to the population of a currency area takes place via the bank system. Money is created by co-operation by central banks , clearing banks and non-banks. (To the non-banks all enterprises without banks count, the private households and the public hand.) creation of money is predominantly based on the grant of credits.

From the view of the creation of money two different kinds are to be differentiated from money to: On the one hand the central bank money, which is created or destroyed by the central bank. For thisalso the cash counts. On the other hand speak one of clearing bank money, a book and/or. Giralgeld purely on bank accounts, which develops or disappears with the private banks.

The impact for creation of money proceeds from the demand of the non-banks for credits. IfClearing banks business enterprise credits to give want, for which it too few means to have, they take up for their part with the central bank credits. In response they pawn securities to the central bank as collateral. Clearing banks are to blame for themselves thus with the central bank andare constantly indebted for this reason.

Due to such credits receive to clearing banks the central bank the central bank money in the form of credit notes on their accounts with the central bank. Debited to these credit notes can refer clearing banks of the central bank also the cash (cash notesand coins), which they may not create. The central bank money gives the condition to the clearing banks to give even credits. Also the credit-looking for enterprises overwrite collateral for the credits to their banks.

Thus is money of the point of view clearing banks from debt voucher.For the central bank money is assets with the banks. Since all money is created today as credit, it is of the central bank opposite the clearing banks, is it with clearing banks opposite their borrowers, is money acknowledgment of debt. With it is substantial, of whomand whom on this acknowledgment of debt exists. For those however, which have outside of the bank system a cash note, it is not certificate of indebtedness, but currency.

From these procedures it is evident that the quantity of the existing money depends on the range of the creditsand constantly varies. In addition the creation of money depends on net assets, which can be pawned to their banks of the applicants for the credit as collateral for their credits and without which it no credits give. Under at present usual economic basic conditions only one can indebted society money have. For this reason of actual except for few exceptions as with rotatingsecured money - all money with interest loads from the front in here. Money is bound a paying from interest therefore always at interest, andthe publishing banks is a condition for the presence of money.

Cash (coins and notes) can be created only by the central bank, Buchgeld on view asset accounts (Giralgeld) both of the central bank as well as of clearing banks.

creation of money of the central banks

thatCentral bank of a country is incumbent on the lead-in supply of their currency area with money. It takes the path over clearing banks.

The central bank scoops money on the one hand over credits, which assign it at clearing banks against the Verpfändung of collateral. Of the clearing bankspawned if proofs of indebtness are frequently from the bank or from other banks spent, emitted . On the other hand the central bank money can by the purchase of foreign exchange, precious metals or securities of the clearing banks produces (free-market policy). Receive in both casesclearing banks the central bank money in the form of assets on accounts credited, which maintain it with the central bank.

The cash requested by the bank public with the clearing banks is delivered by the central bank in the form of coins and cash notes, which clearing banks with thatCentral bank debited to their assets at central bank money to refer know.

The central bank raises on from it at clearing banks assigned credits the so-called central bank interest. These are further-loaded by the banks their own applicants for the credit.

The assignment of credits to thosepublic hand by the central bank is forbidden to D in the euro area since the second stage of the European monetary union of 1994. h. the state must borrow itself money with clearing banks. Completely differently in the USA: There made for example to 17. November 2004the post “U.S. Treasury " even 89.3% of the entire active of the Federal reserve of system out. That means: The US Dollar is almost exclusively covered by US national indebtedness.

creation of money clearing banks

of the credit distribution

due to creditsthe central bank (central bank cash holdings) and of savings deposits of banking customer (non-banks) credits can give their customer to clearing banks. Buchgeld is created by this procedure. After promise of the credit the applicant for the credit of a view asset account can with his bank from payments by Transfers on accounts of customers of same or another bank make let or whereupon cheques issue or to cash to be disbursed be able.

The cash taken off from borrowers can be used outside of the bank system for cash payments. In this way cash arrivesin principle always under the population. An exception of it was in Germany 1948 the direct first of 40 D-mark of the local administrations at each national citizen as starting money with the currency reform.

With clearing banks Buchgeld develops, by cash of banking customers on view asset accountsone deposits. Afterwards the cash is first with the bank, and the customer has a cash on account. The assets represent a demand on cash, against which the customer has the redisbursement of cash of benefit. Each deposit of cashsolvent Buchgeld leaves in the form of assets with the banks, which remain so long in the bank system and as currencies from account to account rotate, until a bank the payer-in pays off again cash. Developing Buchgeld from oneCash deposit can be understood not yet as actual creation of money, because no money geldvermehrung, but a money form takes place here into another is only converted - cash in view assets.

Genuine creation of money however is it, if the quantity of the Buchgeldes increases, by thatif cash resembles several times repeated for granting of credit is used, then the bank system again leaves and into accounts is deposited again. This is called multiple creation of money.

multiple creation of money

after in principle once cash in the population in circulation comeactual usually on the credit way of the central bank over clearing banks to credit-taking enterprises and then as payments at their suppliers and Lohnempfänger -, it can be deposited with clearing banks into accounts. Thus the banks are in thatSituation to give credits. As far as the credits are paid off in the form of cash, cash can be used outside of the bank system for payments and be returned sooner or later again as deposit to the banks. Becomes cash on the credit account of an applicant for the creditdeposited, then this means a reduction or a repayment of its credit. If cash returns however on other bank accounts than those from applicants for the credit to the bank system, then the banks have money again, in order to be able to assign further credits. In this way formsitself with the banks a chain of received inserts and assigned credits. Each mark develop view assets, which to the cash currencies are additional.

In addition the model example of a credit chain:

  • A bank has 1,000 from its customers, - € when receive insert on view asset accounts(1. Insert). From it it exhausts the minimum reserve set specified from the central bank to the central bank or does not keep - if such an obligation does not exist as in Switzerland - a security reserve (liquid reserve) back (here accepted to 10% =100, - €, actually today substantially less), so that their 900, - € remains, which assigns them as credit to a customer. These 900, - € from the applicant for the credit as cash are taken off and spent and land as the further insert on another view asset account(2. Insert). Of it the bank keeps again 10% = 90, - € lends the remaining 810 as reserve in and, - € as new credit. This amount of credit is taken off again and spent as cash and deposited a view asset account (3. Insert).Become again 10% = 81, - € when retain reserve, and remain 729, - € , which are assigned again as credit, etc.
  • The view assets from the inserts result in together 2710 € as book money supply (1000 + 900 + 810 €) andcan be used for payments from account to account. In contrast to this the quantity of cash, standing in circulation, was reduced by the reserves, thus around 100 + 90 + 81 = 271 €. Thus stand still 1000 - 271 =729 € at cash in circulation. Consequently can with 2710 € at view assets and with 729 € at cash in the same time by different owners payments one implement. More exactly: At the same time, as the last-mentioned applicant for the credit with cash of 729€ , the three owners of view asset with their assets payments of together 2710 pay can € implement, by transferring the assets to accounts of other owners of an account. The solvent money supply M1 is thus in relation to the output quantity of 1000 € on 2710 + 729= 3439 € increased! This money geldvermehrung applies, as long as none makes the payer-in a cash removal of its view assets.

The credit chain could be continued but become for an unlimited period, those credits which can be assigned again ever smaller. As strongly the money supply in the long run theoretically increasecan, the creation of money multiplicator indicates, which depends on the height of the minimum reserve set. It amounts to 1/Mindestreservesatz. (In the example with a tenth as minimum reserve it amounts to 10.) A natural delimitation of the creation of money arises as a result of the fact that the banks in the situation itsmust to disburse their customer on demand cash. In addition they must the inserts a security reserve in cash hold, the mentioned liquid reserve, and cannot not in full height for credits make available. The liquid reserve does not have to cover the full existence of view assets,because the once deposited cash is practically never more in its entirety withdrawn by the banking customers - paying by transfer is more favourable.

The credit distribution of the cash quantity with a security reserve of ten per cent as in the example, deposited by in each case nine tenths, correspondsthe usual order of magnitude. This relationship can vary depending upon the need of the banks of security reserve. If this need rises, then its credit distribution ability decreases, and the book money supply must sink. The credit distribution of nine tenths leads in practice to a book money supply,those the two to two-and-one-half times ones of that cash quantity constitutes, which is in the population in circulation.

After a credit distribution, which is based on deposited cash, two different payments can be implemented at the same time and next to each other, where only one was possible before,indeed on the one hand by passing on of cash outside of the bank system, on the other hand by transferring Buchgeld within the bank system. This possibility exists, because now cash and Buchgeld are simultaneous in the play, instead of only cash alone. Again the cash spent over the credita further mark can be deposited and by a new owner into a view asset account, either into its own or into that of another. This repeated using of the same cash to removing extent is basis of the multiple creation of money clearing banks. Characteristicallyis that repeated changes of the kind of the currency between cash and Buchgeld.

The multiple creation of money is a condition and explanation of the fact the fact that the book money supply can be substantially larger and is as the cash quantity. In the same way could forwardsdevelop for the time of the cashless money transfer from a limited quantity coined money a substantially larger quantity note money.

Clearing banks can operate active) book creation of money from itself and intentionally no (, if they do not receive new cash investments, because otherwise their balances from the equilibriumwere guessed/advised. The multiple book creation of money is a general bank-technical procedure, which with the banks (passively) runs off unintentionally and them is often not conscious, because everyone of the procedures taken part in it represents an individual independent banking transaction. Although by it the money supply with thatDanger of the inflation increases, carries the banks themselves no responsibility for it. Instead the central bank looks for this process by the establishment of its central bank interest rates and - practices if - the minimum reserve set to steer, the clearing banks giving credits raise the price of those orreduce in price and it thereby for damming or expanding their credits and thus the book money supply motivate. In order to switch the creation of money off clearing banks completely, a 100 percent minimum reserve was already demanded, so of Milton Friedman.

to Fiat Money

see major items Fiat Money

Fiat Money, a money from that anything, is not money, whose legal covering is either not complete or is missing by material net assets.

The designation Fiat money (it becomes money) is derived from latin Fiat lux (it becomes light) from the creation history of the Bible (1. Mose 1.3).

This kind of the creation of money can be usually used by the publisher, the central bank, if necessary.

The money from that anything is not no special kind of moneyund von niemandem als solches erkennbar, da Münzen, Scheinen oder Kontoeinträgen nicht angesehen werden kann, ob und in welchem Umfang sie juristisch gedeckt sind. With Fiats money legal covering is substantial, not the economical (see under theoretical definition inArticle money). Fiat money can be economically covered by a being and a performance, although it does not possess legal covering.

Practically all currencies are not sufficiently covered for Fiat Money nowadays not or and thus, at least partly.

The possibility for the creation ofFiat Money exists only so long, as the private market participants (households, banks and other enterprises) attach a value to in this way emitted money.

influencing control of the central bank on the creation of money

the nominal money supply is subject only to onesmall part the direct influence of the central bank. Since this must being interested however in the context of its tasks in control of the currency stability, the money supply and the money circulation like also the liquidity in the economy, she searches on the creation of moneyTo take influence. In addition their three in principle mechanisms are available:

  1. It obligates the banks to deposit a part of their inserts free of interest as minimum reserve with the central bank. If it increases the minimum reserve, the banks of fewer credits can assign and in reverse.At present this reserve obligation is lowered in the euro area on 2%, whereby the reserves at height of the key interest are paid interest on, and in Switzerland completely waived.
  2. It puts cash (central bank money) for the granting of credit to the banks to different extent at the disposal. This happenswith the help of the discount policy and/or the Lombardpolitik, within whose framework banks can pawn changes and/or securities with the central bank, whereby money is put to them at the disposal. If the interest computed for it (rate of discount and/or bank rate for collateral loans ) is low, those becomeBanks many papers pawn, so that receive much money, and they can assign so also many credits. If the central bank raises the price of the procurement of money, the granting of credit sinks accordingly.
  3. It offers alternatives to the granting of credit to the banks. This happens in the context of the free-market policy,with that the central bank the banks themselves securities to the purchase offers. If the terms of interest of the central bank are good, the banks open market papers are too assigned to buy instead of credits and the creation of money becomes smaller.

the consequences of changed handling alsoMoney

this (usual) kind of the explanation of the multiple creation of money through clearing banks becomes however ever more out of touch with reality, because the demand of the banking customers for cash sinks relatively ever more. The payment possibilities by transfer in the daily life increase clearly. Clearing banks can thus alsoever more Giralgeld by granting of credit simply produce, without having to then deliver central bank money (cash). Thus also the acceptance that cash is really inserted with clearing banks, is less and less realistic. Savings deposits are transacted excellently by the current account directly on the savings account. Thushowever the possibility of the central banks decreases of steering the money supply.


  • Martin Scheidt: Theoretical bases of the bank-business granting of credit (thesis), 1962, Duncker & Humblot

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