Back in the eighties, some of the most prominent Yugoslavian economists confided/complained to me that as “non-monetarians” they can hardly understand and follow discussions and articles regarding monetary and financial topics: that field, as they said, was somehow abstract, imaginary… I assume that for them, as well as for many economists from younger generations, not to mention non-economists, businessmen/”practical businessmen”, politicians, etc, the World of money and finance is not less abstract and totally transparent even today, after the “financial revolution” “happened” during the previous three-four decades and after the current global economic crisis, if not primarily generated, at least emerged from this field.
Indeed, the contemporary World of finance can hardly be essentially explained and understood if it is observed as an enormous amount of monetary and financial activities which we meet or hear about at every corner: about issuing of money, restrictive or expansive monetary policy, loans and interests, credit cards, cheques, imballances, etc; about numerous accounts at various financial institutional entities, local and foreign currency balances; about audits and supervision; about shares, majority and minority shareholders; about foreign direct investments… portfolio and greenfield investments; about electronic money and electronic payments; about stock exchange and OTC operations, including the electronic forms of trading in securities; about the international financial integration and globalization; and especially about terminology which is still not very much present in our everyday lives, such as the “industry” of pension insurance and some other forms of “industrialization” savings, financial products…; then various kinds of risk management, financial hedging, financial derivates…; and to complete the illustrative numeration with what is perhaps the least understood and it is that, in spite of numerous measures and instruments for hedging, i.e. distribution of risk, it cannot be denied that there is a financial imbalance, financial instability and financial crises, such as - let us mention only a few – the Mexican (“Tequila”) financial crisis, East-Asian financial crisis, Russian currency crisis, Argentinean crisis, and also some financial scandals in large world corporations (microeconomic instabilities, crises and collapses), such as Enron, etc.
Table of Contents
1. A short introductory look at that mysterious and virtual World of money and finance
2. Money – underlying and key category for understanding of the World of money and finance; controversies about the monetary system
3. Today, when the role of money is virtually powerful, it is difficult to understand the former concept of “neutral money”
4. The most important phases of development of money and finance in the twentieth century up to the causes of Global depression
5. For the initial explanation of the creation of modern money, money creation - opens the door to uncovering its mystery, and virtuality
Objectives and Topics
This work aims to demystify the complex, virtual nature of the contemporary financial system by examining the evolution of money, its functional essence, and the mechanisms of modern money creation. It explores how a debt-based system, often perceived as chaotic or mysterious, functions as a structured industry, and addresses the critical roles of confidence, banking institutions, and state regulation in maintaining monetary stability.
- The transition from full-value commodity money to modern fiat and banking money.
- The relationship between the monetary system, financial systems, and global financial crises.
- Historical shifts in economic theory, from "neutral money" concepts to contemporary financial industry dynamics.
- The technical process of money creation (ex nihilo) and its implications for redistribution and inflation.
- The fundamental role of public and institutional trust in the viability of the financial system.
Excerpt from the book
1. A short introductory look at that mysterious and virtual World of money and finance
Back in the eighties, some of the most prominent Yugoslavian economists confided/complained to me that as “non-monetarians” they can hardly understand and follow discussions and articles regarding monetary and financial topics: that field, as they said, was somehow abstract, imaginary… I assume that for them, as well as for many economists from younger generations, not to mention non-economists, businessmen/”practical businessmen”, politicians, etc, the World of money and finance is not less abstract and totally transparent even today, after the “financial revolution” “happened” during the previous three-four decades and after the current global economic crisis, if not primarily generated, at least emerged from this field.
Indeed, the contemporary World of finance can hardly be essentially explained and understood if it is observed as an enormous amount of monetary and financial activities which we meet or hear about at every corner: about issuing of money, restrictive or expansive monetary policy, loans and interests, credit cards, cheques, imballances, etc; about numerous accounts at various financial institutional entities, local and foreign currency balances; about audits and supervision; about shares, majority and minority shareholders; about foreign direct investments… portfolio and greenfield investments; about electronic money and electronic payments; about stock exchange and OTC operations, including the electronic forms of trading in securities; about the international financial integration and globalization; and especially about terminology which is still not very much present in our everyday lives, such as the “industry” of pension insurance and some other forms of “industrialization” savings, financial products…; then various kinds of risk management, financial hedging, financial derivates…; and to complete the illustrative numeration with what is perhaps the least understood and it is that, in spite of numerous measures and instruments for hedging, i.e. distribution of risk, it cannot be denied that there is a financial imbalance, financial instability and financial crises, such as - let us mention only a few – the Mexican (“Tequila”) financial crisis, East-Asian financial crisis, Russian currency crisis, Argentinean crisis, and also some financial scandals in large world corporations (microeconomic instabilities, crises and collapses), such as Enron, etc.
Summary of Chapters
1. A short introductory look at that mysterious and virtual World of money and finance: This chapter introduces the abstract and often chaotic nature of the modern financial world, highlighting the difficulty experts and laics face in understanding it despite its pervasive influence on everyday life.
2. Money – underlying and key category for understanding of the World of money and finance; controversies about the monetary system: This section demystifies money as the core raw material of the financial industry and traces its evolution from full-value commodity forms to contemporary fiat money.
3. Today, when the role of money is virtually powerful, it is difficult to understand the former concept of “neutral money”: This chapter contrasts classical and early neoclassical theories, which viewed money merely as a technical "veil," with the powerful role money plays in modern economic trends.
4. The most important phases of development of money and finance in the twentieth century up to the causes of Global depression: This chapter outlines key historical events—such as the Great Depression and the Bretton Woods arrangement—that shaped the current financial landscape and led to the globalization of financial markets.
5. For the initial explanation of the creation of modern money, money creation - opens the door to uncovering its mystery, and virtuality: This chapter provides a simplified, descriptive explanation of how the banking system creates money ex nihilo through debt, emphasizing the necessity of understanding this process to demystify finance.
Keywords
Fiat money, financial system, monetary system, money creation, financial revolution, credit-based economy, monetary policy, banking money, inflation, financial instability, economic theory, global financial crisis, debt, virtual economy, financial industry.
Frequently Asked Questions
What is the core subject of this work?
The work focuses on demystifying the "mysterious and virtual" world of money and finance, examining how modern financial systems function and how they have evolved.
What are the primary thematic areas?
Key themes include the evolution of money, the mechanisms of money creation, the role of central and commercial banks, and the historical drivers of contemporary financial volatility.
What is the primary objective of this publication?
The goal is to provide a clear, structured explanation of monetary and financial categories to help readers understand the essence of money and finance beyond technical jargon.
Which scientific methods are employed?
The author uses a historical-evolutionary approach combined with a simplified, descriptive method to break down complex financial processes into understandable components.
What does the main body of the work cover?
It covers the transition from full-value to fiat money, the "neutral money" concept in early economics, the impact of 20th-century historical events on financial structures, and the debt-based process of modern money creation.
How can this work be characterized by its keywords?
It is characterized by terms linking monetary theory with practical financial operations, such as "fiat money," "financial industry," "money creation," and "financial instability."
How does the author explain the creation of money ex nihilo?
The author describes it as an accounting process where banks, upon approving loans, simultaneously debit the loan amount and credit the borrower’s deposit account, thereby increasing the money supply through debt.
Why does the author consider confidence the "cornerstone" of finance?
The author argues that since modern fiat money has no intrinsic value (no gold coverage), its acceptance as a means of payment relies entirely on the public’s trust in the liquidity of banks and the state's stability.
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- Professor Dr Stanko Radmilovic (Autor:in), 2012, Money and Finance. Creation, features, and functions, München, GRIN Verlag, https://www.grin.com/document/267465
