Money

The currency has several reasons to be, its three functions are:

• it serves to express the value of things, we speak of unit of account,
• It is used to exchange value without exchange of goods, transfer of value function,
• It is used to store the value (selling without buying or vice versa and save) a store of value.

Some speak of money as an instrument of “cold”, others see it as a social element (I buy an hour of hair by working 15 minutes). Nevertheless, the currency has only one nature.
Forms of money are:

• parts (coins)
• notes (paper money)
• banking (money).

This is the most commonly used worldwide. This is where the phenomenon occurs mainly in money creation. As I said here (Read the creation of money through debt.) money is virtually no physical printer by the states or central banks but is generated by cash transactions, ie swaps. More than that, the money supply increases with the number of credit outstanding, and we talk about money debt. If you repay the debt, it destroys the currency involved.
To convince you, a simple example to demonstrate this phenomenon:
I want to buy a car from € 10 000. My bank lends me money to finance the purchase. It is therefore expected that I would repay the € 10 000.

I give the check to the seller who will file with the bank. So the bank is to collect € 10 000 while I still have to repay € 10 000 to my bank.From this transaction, the “system” has just been to provide additional € 10 000 and neither the state nor the central bank intervenes.

So if long pieces were created to inject money into the circuit, since banks play the major role in the creation of money, just an online computer to create “money.” All this is of course possible because the currency is not backed by something tangible like gold, its value is not indexed to the price of gold or the amount of gold time state.
This is also criticized by some as one of the biggest hit of the bankers on the currencies of the states, the unfortunate initiative back to our beloved Nixon, what was then called the gold standard , bankers argue that this choice has allowed the development of our economies.

In addition, the current operation of the issuance of money by the banks that each amount collected is used to pay back money to another client, the fractional reserve system that allows a bank lending money by not having a part of the money it lends. The bank did so only need a fraction of the money it lends to a customer to be allowed to make the loan to his client. The amount of the fractional reserve has gradually been reduced by states and currently a bank
with € 1 000 may lend up to 10 times that amount is € 10 000.

The little worry is that a panic when many customers want to withdraw their money, the bank is unable to return the money to all its customers for the simple reason that it not have the money that the customer has added all of its respective accounts. This is what is called the Bank Run . If this happens, the bank often end in bankruptcy or is forced to close its facilities to block the withdrawal of its customers. Of course a background of care exists in France but his stock is so low that I do not dwell on the subject.
Many celebrities have long complained the system: Irving Fisher in 1935 or the 1988 Nobel Prize in Economics Maurice Allais.

To measure the quantity of money circulating indicators exist, they are called monetary aggregates. They also differentiate between liquid monetary assets of non-liquid monetary assets.

M = 1 + coins + paper money bank money. Liquid assets of non-financial economic agents.
M 2 = – M 2 = M1 + deposits on the accounts of type A booklet, deposit accounts, ELP …
M3 = M2 + pension + debt securities with a duration = or> 2 years + money market fund shares and other instruments (mutual funds, bonds …).

The M3 is often used to drive the economy. Its evolution can see if the credit is increasing or whether it tends to reduce (debt or debt reduction). Before the crisis that we know, he was constantly increasing, since it tends to stagnate or even decline a sign that economic actors are deleveraging and thus “destroying” of money by paying their debts.

Related posts:

1. Inflation, deflation and economic considerations – part 2
2. Inflation, deflation and economic considerations – part 4
3. Inflation, deflation and economic considerations – part 3
4. Where does the money go? Who makes it? Money as Debt – Money Debt Paul Grignon
5. The changing role of emerging markets: from deflation to inflation
6. What is a “Bank Run” (bank run)?
7. Volatility and economic risks on the horizon
8. The law of supply and demand and inflation ignored
9. Effects of inflation on investment
10. The TD provides an economic slowdown sharper than expected