November 21st, 2008
Do western democratic governments create additional money
periodically? How do they do this?Hi daronryan,
It's a bit more complex than printing the actual notes, and there's
not one method. Here's some links that will walk you through the
mental gymnastics of several of the methods used to create money where
there was none before.
REFERENCES:
Creation of Money
http://money.zezenetwork.com/articles/creation_of_money.htm
..."The process of money creation that underlies our banking system in
the U.S. and other countries is widely misunderstood and frequently
the topic of misguided theorists. It's really not that difficult and
there's nothing sinister or mysterious about it.
What it's not
The creation of money has nothing to do with minting coins or printing
currency, although the Federal Reserve does use the amount of money in
circulation as an indicator in making decisions on the control of the
money supply. The creation of money has no other relationship to
interest rates and the money created is not interest.
How is Money Created?
Financial institutions create money by taking in deposits of cash and
checks, and lending a portion of this money out in loans. Banks are
required to keep a percentage of their deposits in reserves in the
form of cash in their vault or deposits at their regional Federal
Reserve Bank.
The amount of required reserves is determined by the Fed, intended to
meet the normal demand for cash by the bank's customers (liquidity)
and to give the Fed a way to adjust the money supply by raising or
lowering the reserve requirement. The reserves (or deposits) are non
earning assets, therefore banks are motivated to convert as much of
the excess of non earning assets (cash) into earning assets (loans) as
they can in order to be profitable. Money creation is a result, but
is not the intent..."
Money creation
http://en.wikipedia.org/wiki/Money_creation
..."There are several ways that a government, in coordination with the
country's commercial banks, can increase or decrease the money supply
of a country. If a country follows a fractional-reserve banking
regime, as virtually all countries do, not all of the money in
circulation needs to be backed by other currencies, physical assets
such as gold, or government assets. Instead, the country's currency is
backed by the economic potential of the country and is based on
government fiat, or decree. This perceived potential puts a
theoretical limit on the amount of money a country can prudently
create..."
HOW PRIVATE, COMMERCIAL, NATIONAL and INTERNATIONAL
MONEY is CREATED
http://www.prosperityuk.com/prosperity/articles/moneymake.html
FROM THERE: How COINS and NOTES are CREATED
..."The significant point about coins and notes money created by the
government is that this money is created debt-free, and spent into the
economy by the government. This is a vital consideration, and it is
therefore important to appreciate precisely how this injection of
debt-free money is managed. Coins and notes are minted and printed by
the government at no cost, apart from that of materials. Of course,
governments have no particular need of these coins and notes; banks
are the institutions requiring a supply of cash. The government
therefore sells the coins and notes that it creates to banks, who pay
by cheque, and the government acquires the face value of those coins
and notes in number-money. The sum of money which the government
obtains, and which is debt-free so far as the government is concerned,
is then added to whatever taxation revenue has been raised to fund the
public sector. Thus, coins and notes are created by the government,
and an amount equivalent to the face value of those coins and notes is
spent into the economy as a direct, debt-free input..."
Hope this illustrates the many different ways money is created. If I
can assist further, please use the clarification feature.
~~Cynthia
Search strategy:
"money creation"It is correct that this has answered my question but I was hoping to
get some more detail. Do the government follow certain rules when
deciding to create more money? What rules are they following? Now that
I see the answer I realize that there is another question that I was
really trying to get answered. To explain what I mean I should first
say that I was already familiar with fractional reserve banking. The
issue I am interested in is the printing of new money. I was figuring
that the government did do this. What I am realising that I want to
know is how can I observe the process happening? Are there particular
statutes that state what is happening? Can I find a website run by the
government somewhere where I can read these statutes? If it happens
each year can I read a publication from the government saying how much
they printed each year?You're changing parameters on me! I can clarify, but can't answer 6
new questions for the same $2.00...
1) Do the government follow certain rules when deciding to create more money?
2) What rules are they following?
3) What I am realising that I want to know is how can I observe the
process happening?
4) Are there particular statutes that state what is happening?
5) Can I find a website run by the government somewhere where I can
read these statutes?
6) If it happens each year can I read a publication from the
government saying how much they printed each year?
Consider this:
Sample Questions at Various Price Points $2 - $5
http://answers.google.com/answers/pricing.html
..."Can be answered with a single link or a single piece of
information. Sometimes, if a researcher is personally interested in
the question's subject, they may provide a longer answer.
Not appropriate for multipart questions..."
I recommend opening a new question (in the $50-$75 range) to get these
answered... Be sure to include a link to this question so the
researcher may use my links to get started..
~~Cynthia
Posted in ashcroftevans.com | edit