Talk:Money creation

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There are only a few ways money is created (at least in the US, or any economy with a central bank). Discussion in this article should be focused on these topics:

1. Counterfeiting
2. Printing money
3. The Federal Reserve and should be discussed in that article
   1. buying/selling t-bills and t-bonds
   2. changing the federal funds rate (discount rate)
   3. and changing the reserve ratio

Finally... if a history of money creation is desired, discussion over the history of 'fractional reserve banking' could be discussed here or in that article.C. Nelson 03:27, 20 March 2006 (UTC)

I disagree with your list excluding the Money Multiplier mechanism, as it does create actual currency, although not in its minted or printed variety. But I do suggest that the article should be generalized to avoid being US-centric, therefore removing much of the Federal Reserve example and replacing it with a general example portraying the actions of a generic bank and possibly the underlying connections with a generic national central bank. Only afterward specific national differences can and should be discussed. manu3d 15:02, 26 November 2006 (UTC)

[edit] Added Discussions

We must add to the equation the currency drain ratio (the propensity of the public to hold cash rather than deposit it in the banking system),the clearing house drain (the loss of deposits from the system due to interactions between banks), and the safety reserve ratio (excess reserves beyond the legal requirement that commercial banks voluntarily hold - usually a very small amount). Also, most jurisdictions require different levels of reserves for different types of deposits. Foreign currency deposits, domestic time deposits, and government deposits often have different cash reserve ratios.

[edit] Disputed

See http://en.wikipedia.org/wiki/Talk:Fractional-reserve_banking

I agree with the dispute tag. This article goes completely against modern (post 1920) economic theory. Money is more than coins and banknotes, it includes electronic money, and bookkeeping entries - anything that represents a liability of the central bank. Not being allowed to talk about the Fed??!! Obviously something is wrong here Smallbones 15:01, 17 September 2006 (UTC)

Could you please explain your point of view and why do you assert that the article goes against post-1920 economic theory? manu3d 14:05, 26 November 2006 (UTC)

I agree with the dispute and suggest the author insert the word 'banknote' before the word 'money' to make the phrase 'banknote money' with the added rider about credit money which is a very significant proportion of money in use. IRG 23 November 2006

I also think that it is important that a discussion about credit card debt be included; I'm not sure if this is money "created" or if it is actually money held by and paid by the bank issuing the card, though. (Meathelmet, 11/26/06)

Credit Card Debt is just one facet of the Money Multiplier mechanism. I'd suggest to reframe the whole article and its examples from the point of view of a single bank dealing with individual customers, and then explain the bank's connection with a generic national bank along similar lines. Doing so, any kind of non-cash withdrawal (money transfers, plastic money) is properly contextualized. What you do think? - manu3d 12:42, 29 November 2006 (UTC)

--- Credit card debt is not -new- money and is therefore not created and should not be included.

[edit] Money Multiplier

In any fractional banking system this is the primary method of money creation. M1 (currency + demand deposits) is almost insignificant when compared with M2+. What does that have to do with the multiplier and the creation of money? The banks create money by loaning out excess reserves and the process repeats its self until (in a perfect world devoid of leakage etc..) the amount of money created is Deposit * (1/required reserve ratio). Further more, in addition to printing money, the central bank often uses drawdowns and redeposits. For example in Canada all of the Chartered banks hold accounts with the BOC, the BOC then deposits or withdraws money (which it can create) into these institutions and it cycles through the banking system. Curiously, Canada does NOT have a required reserve ratio as per the Banking act of 1992 -to compensate the BOC is the lender of last resort.

What i'm trying to say is that the money multiplying effect of the banking system IS the primary method of money creation.