Mechanisms of monetary creation.

Monetary creation consists of increasing the quantity of money held by non-financial agents (NFA). Indeed, within the economy the quantity of money in circulation is not stable.  Its variation has significant meaning.  When we observe in a given period a positive variation of the monetary aggregate we speak of money creation. It is the putting into circulation of a new quantity of money, not the substitution of one form of money for another.


The actors of money creation:
Only three categories of agents  have the power to create money: Credit institutions, the Central Bank and the Public Treasury.

.The creation of money by the Central Bank:
The observation of the simplified balance sheet of the Central Bank makes it possible to distinguish the methods of creation of money by this institution.  The Central Bank creates money when it buys gold and foreign currencies, when it refinances peripheral banks or when it grants new aid to the State.
The money created by the central bank is called  central bank money or central money.  It is thus made up of banknotes in circulation and assets held by banks in their account at the central bank.
Central bank money is also called bank liquidity.
In the same way that non-financial agents have bank accounts.  banks have an account (the bank reserves) to the central bank which allows them to make their reciprocal settlements in central money.

.The creation of money by the Public Treasury: 
To be distinguished from the Central Bank, the Public Treasury has been defined as the financial personification of the State. This institution creates money when it transforms a debt, on itself, into payment instruments that can be used on the market for goods and services, when it handles the payment of salaries of civil servants, payment of state suppliers, contractors, payment for a service that has been advanced to the state.

.Creation of money by Credit institutions:
In a system of full convertibility, banks only lent money to the extent of the quantity of metals at their disposal.  Indeed, scriptural money is by far the most important component in the money supply.  So commercial banks represent the major source of monetary creation in the economy. The observation of the simplified balance sheet of these establishments shows that they create money in favor of the State, companies, individuals and abroad (purchase of debt securities on these agents).
-For the state: By buying the securities that are issued by the state, a bank creates money.  In the case where these securities are negotiable on a secondary market, this bank can absorb the money created by selling these assets to the public, for example.  State securities, therefore, constitute potential liquidity for the institution that acquires them.
For the Public: By granting loans to businesses and individuals, a bank creates money for the benefit of the economy.
Foreign exchange transactions: The buying and selling of currencies has often been seen as a third channel of money creation.  These operations essentially concern import and export operations, indeed, manual change represents a much smaller share overall.  In reality, the commercial bank acts as a Intermediary between the issuing institute and the public.  The currencies are retroceded to the Central Bank, which results in the creation of central money.

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