At the beginning of this article we have to say that the readers, in order to obtain more comprehensive information about what is actually happening in the World of money and finance, can expect not only broader, but also a more complex elaboration about its creation, the one that is presented in the article “The initial explanation of money creation - opens the door to uncovering its mystery and virtuality.” Generally it is not excluded that there will be those who will stand on the notion that it is inappropriate and that the emission of money is no longer a highly topical issue, pointing to the arguments that, in a sense, "are true, but not the whole truth ". For example, stating that the issue of money creation and the monetary system as a whole is not as current as it used to be, and according to many the same goes for monetary policy, the following theses and reasons are mentioned:
(1) "The bogeyman" of (hyper)inflation has been globally overcome and the situation today is quite different from that in the larger part of the second half of the twentieth century. In other words, many will insist that, already at the end of the twentieth century, especially in the current period, financial instability (anyhow we define it) and the financial domain in general (that is, how the money is used), have become a more acute problem than the monetary, price instability, then inflation;
(2) from this fact, can be drawn consequential thesis, which reduce actuality and importance of money emission;
(3) or, in other words, a conclusion is drawn that the focus is not any more on the activities related to the existence, disruption of equilibrium and restoration of macro-monetary balance of supply of (Ms) and demand money (Md) - which means the mechanisms and policies of issuing money – but this place being taken over by finance, financial system, financial (in)stability. Or, to put it differently, or even more clearly: in the foreground, there is an outbreak of incredible expansion of modalities of use of money and a number of implications that arise from these modalities.
Inhaltsverzeichnis (Table of Contents)
- Emission mechanism - important as part of the monetary system, monetary and economic policy and of the different operations that may mean financial repression
- At the beginning of this article we have to say that the readers, in order to obtain more comprehensive information about what is actually happening in the World of money and finance, can expect not only broader, but also a more complex elaboration about its creation, the one that is presented in the article “The initial explanation of money creation - opens the door to uncovering its mystery and virtuality.”
- As we said it earlier, it is the truth, but not the whole truth. Namely, we have to bear in mind what we have also said before.
- The purpose of the presentation in the article “The initial explanation of money creation already - opens the door to uncovering its mystery and virtuality”, was with a limited aim - to lead us into the World of money and finance and in this way to emphasize two key facts: that money is a transferable claim from banks and that it (the claim) is created from nothing, ex nihilo.
- Anyone who thinks it is unrealistic to assume the existence of only non-cash payments and the non-existence of cash, they are right, but that does not mean that the goal we wanted to prove fell through, namely that both types of money - first central bank monetary base, MO, and then created money commercial banks - first appeared in the form of deposit money.
- Now, after this collateral consideration, we return to the baseline of the text. The central bank is not the only institution that issues money. It makes primary emissions, while the rest, as a rule, a larger portion of the money supply, is created through the secondary emission of commercial/depository banks, based on the primary emission (monetary base) of the Central Bank.
- The explanation of the emission mechanism and process so far, we have de facto identified two instances of the emission mechanism, but there is also the fact that there are two instances. This all I would not have been worth mentioning if each of these instances did not have their own characteristics, importance and in terms of how they issue money as well as the implications produced.
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This article aims to provide a detailed explanation of the emission mechanism of money, addressing its role in the monetary system, monetary and economic policy, and its relation to financial repression. It delves into the complexities of money creation, exploring both primary and secondary emission processes within the banking system.
- The importance of the emission mechanism in the monetary system and its implications for economic policy
- The creation of money and its relationship to the financial system
- The different levels and phases of money creation within the banking sector
- The role of the central bank in primary emission and its relationship to commercial banks
- The impact of cash and reserves on secondary emission processes
Zusammenfassung der Kapitel (Chapter Summaries)
The article begins by acknowledging the common perception that the issue of money creation and the monetary system is less pressing than in the past, due to the global control of inflation and the increasing prominence of financial instability. However, it argues that this view overlooks the continuing importance of money creation, emphasizing its essential role in the financial system.
The second section reiterates the key points from a previous article, namely that money is a transferable claim from banks and that it is created from nothing. It then explores the complex reality of the banking sector, highlighting the dual-level emission process: primary emission by the central bank and secondary emission by commercial banks.
The third section addresses the issue of cash payments and how they relate to the emission of money. It explains that both base money and deposit money are initially created in the form of deposits, with the central bank issuing base money, which is then converted into cash when necessary. This conversion is considered a barrier to unlimited multiplication of the monetary base.
The fourth section clarifies that the central bank and commercial banks together constitute a single emission mechanism, with commercial banks creating a larger portion of the money supply based on the central bank’s primary emission. The mechanism of secondary emission through commercial banks is explained, emphasizing the role of multipliers and limitations such as cash outflows and reserves.
Finally, the article introduces the concept of different emission variants, which can be explored through numerical examples and control identities. It identifies three key variables in the emission mechanism: the way of issuing the monetary base, the rate of outflow into cash, and the rate of bank reserves with the central bank.
Schlüsselwörter (Keywords)
The primary keywords and focus topics of this article include: emission mechanism, monetary system, monetary policy, financial repression, money creation, central bank, commercial banks, base money, deposit money, cash, reserves, multipliers, secondary emission, financial system.
- Quote paper
- Professor Dr Stanko Radmilovic (Author), 2012, Emission mechanism as part of the monetary system, monetary and economic policy and of the different operations that may mean financial repression, Munich, GRIN Verlag, https://www.grin.com/document/267476
