Primary MoneyMoney plays a central role in our lives, but nothing can be completely free from ambiguity. This article describes only some basic ideas, but should contribute to general understanding of what and how to get the money.
Two Types of Money
Money is a sign that is generally accepted as a medium of exchange. Trademarks can be tangible, such as a coin or a note or intangible assets such as deposits. If the token is transformed into a commodity as precious as gold medals are known as commodity money. Commodity exchange rates vary, but generally greater than the value of a commodity. A bullion coin is a token could be converted into precious metals contained in the file.
If the voucher is essentially useless and non-convertible, the government should give them a special status to make them suitable as money. Good is known as the greenback. In addition to collectibles, all government data released today is the greenback. Therefore, we must avoid thinking in terms of commodity money in the modern understanding of money.
In an era of price of commodity money, the publisher has been limited by the need to ensure adequate supplies of goods taxable account. There are no restrictions as in the case of notes. The value of paper money because it depends on the policies and actions of the issuer, usually a country's central bank. The rest of this paper is on the U.S. monetary system and does not need to go to another country.
Fiat money as a tax
the general acceptance of paper money by the government in his capacity as legal and the facts necessary to pay federal taxes. Those who have no reason to get a tax because the value of paper money to those who do. So paper money can be regarded as a tax credit to be used as bargaining chips for the government to collect taxes on a large scale impact.
Money Primary
Fiat money in the hands of the private sector is known as the monetary base, which will be called the monetary base. The main problem of money the Fed to purchase securities to the public for their portfolios, including the Treasury's debt. Powered by deposit in a bank's Federal Reserve Bank of the seller. This is known as the receiving bank loans.
Money Bank
bank deposits, known as the money from the banks when granting loans only on the borrower's account is credited with a new store. Increasing the amount of money for bank loans of the bank. When a loan, the amount of money the bank lost.
The value of money from the bank, based on promises that can be converted into cash on demand at face value. Regulations currently require banks to money from the reserves of at least 10% of the deposit transaction to hold. Reservations may be stored in a combination of cash and security deposits when fed. No reservations are required for the debts of other banks such as savings accounts or certificates of deposit.
Reserve price control
Although there is no reserve requirement, banks have sufficient reserves to depositor Tired JVC and time enough money to meet the demand of market needs. The need for reserves and active interbank market where banks can borrow or lend reserves to each other to create. Interest on short-term transactions are called Fed funds against.
The Fed is directed against the target Fed funds rates through open market operations. Includes the purchase or sale of securities on the open market to add or release of reserves needed for the systems of supply and demand balance for the target Fed Funds rate.
Each bank in good and sufficient collateral to borrow short-term reduction in box Fed Fed interest of 100 basis points above the Fed Funds target rate. With a significant difference, the discount window is used by banks to issue temporary liquidity problems and could not be applied as a source of reserves for additional loans.
Note: During the subprime crisis of 2007-2008, the Fed lowered the discount rate by 25 basis points above the Fed Funds target rate to increase liquidity in the banking system. The result will be a temporary measure.
The role of response Fed
Because the control of the Fed reserve price rather than quantity? The answer is the estimated quantity of liquidity risk in the banking system at risk. For example, increasing the debt through a public commitment to cash flows from the banking system safety. If the Fed responded by injecting reserves one or more banks or are able to reserve requirements or require the withdrawal of depositors meeting.
reserve price is also more effective in controlling the volatility of the Federal Funds rate, so banks are interested in filling their loans. The company is able to effectively plan, when the banks are subject to price changes are large and unpredictable.
As a result of the Fed's target for the price, the bank can vary the money supply with demand. Expands and contracts based on factors that influence the appropriations of the private sector. Thus, the Fed essentially a reactive role, adding or draining cash reserves necessary for the banks and Fed funds during the course.
Restriction of bank loans
Why compliance with the reserve ratio really does not preclude the bank loan, what the banks to prevent and respond to the needs of the loan? The answer is that each bank must also meet the requirements of fairness. This is a complicated formula that rates the risk assets of banks and capital needs of this part of the RWA.
A bank can get into trouble with the creation of excess energy through loans. A bank with adequate capital in relation to the activities under his supervision has been addressed by regulators that the company could then a new loan applications were approved.
Define money supply growth
Another important question is what are the money supply to reduce the excessive expansion of bank? Banks are in business of hire purchase. If borrowers are willing to pay the credit level, banks usually lend, even if it has the backup needed to borrow after the event. Only defense against the creation of excessive supply of money in the bank's central bank, the price back up to the point of slowing demand for cleaning.
question the basis of monetary policy by the Fed to offer money to the bank to maintain balance with the needs of producers and availability of products and services. Which requires knowledge about the economy and the ability to interpret data. The mismanagement of the minimum price, good economy to push inflation or recession track. This is a difficult task, and the Fed has a market share of mistakes over the years is usually apparent only later.
