This is my brief explainer (forthcoming in The Encyclopedia of Central Banking, coedited by L. Rochon and S. Rossi).Money And The Real Economy
A primer on Central Bank Money: Do you know what a dollar, or a euro, really is?
Andrea Terzi, Professor of Economics, Franklin College, Switzerland
2 comments:
In year 2000 and 2010 articles Stephanie Kelton argues that private Special Depository banks can be chosen and allowed to create credit to purchase US Treasury bonds where a "reserve add" is not wanted. Should this credit not technically be construed as the creation of Central Bank Money, or high powered money, or remain separately classified?
"Do Taxes and Bonds Finance Government Spending?"(Now behind paywall.)
http://neweconomicperspectives.org/2010/11/yes-deficit-spending-adds-to-private.html
To add further information to my question here is an extract from Scott Fullwiler's article "Treasury Debt Operations:-
"(Indeed, one could go further and note that the deposits of the primary dealers used to purchase the Treasury security were themselves likely created by previous borrowing in the repurchase agreement markets (that is, primary dealers often add to their assets such as Treasury securities with funds borrowed by using their
existing assets as collateral), while the Treasury security will very likely serve as
collateral for further credit creation in these markets. So, far from being less
stimulative or “crowding out,” the Treasury may in fact be the catalyst for more credit creation than would occur in its absence.)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1825303
On the face of it from a regression aspect the ultimate creation of money from nothing by the private bank would appear to give it a shared role with sovereign government in creating net financial assets for the non-government sector when there is a desire by the central bank to avoid a "net add" to maintain a specific base or Fed rate.
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