In monetary economics, inside money is money issued by private intermediaries (i.e. commercial banks) in the form of debt (credit). [1] This money is typically in the form of demand deposits or other deposits and hence is part of the money supply. The money, which is an asset of the depositor but coincides with a liability of the bank, is inside money. [2] Outside money is money that is not a liability for anyone "inside" the economy. It is held in an economy in net positive amounts. Examples are money that is backed by gold, and assets denominated in foreign currency or otherwise backed up by foreign debt, like foreign cash, stocks, or bonds. Typically, the private economy is considered as the "inside", so government-issued money is also "outside money." [3]
Inside money is thus a liability (equivalently a negative asset) to the issuer, so the net amount of assets associated with inside money in an economy is zero. Most money circulating in a modern economy is inside money. [4]
The monetary policy of the United States is the set of policies which the Federal Reserve follows to achieve its twin objectives of high employment and stable inflation.
In macroeconomics, money supply refers to the total volume of money held by the public at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circulation and demand deposits. Money supply data is recorded and published, usually by the national statistical agency or the central bank of the country. Empirical money supply measures are usually named M1, M2, M3, etc., according to how wide a definition of money they embrace. The precise definitions vary from country to country, in part depending on national financial institutional traditions.
Monetary reform is any movement or theory that proposes a system of supplying money and financing the economy that is different from the current system.
In economics, hot money is the flow of funds from one country to another in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts. These speculative capital flows are called "hot money" because they can move very quickly in and out of markets, potentially leading to market instability.
Fractional-reserve banking is the system of banking in all countries worldwide, under which banks that take deposits from the public keep only part of their deposit liabilities in liquid assets as a reserve, typically lending the remainder to borrowers. Bank reserves are held as cash in the bank or as balances in the bank's account at the central bank. Fractional-reserve banking differs from the hypothetical alternative model, full-reserve banking, in which banks would keep all depositor funds on hand as reserves.
Full-reserve banking is a system of banking where banks do not lend demand deposits and instead only lend from time deposits. It differs from fractional-reserve banking, in which banks may lend funds on deposit, while fully reserved banks would be required to keep the full amount of each customer's demand deposits in cash, available for immediate withdrawal.
A country's gross external debt is the liabilities that are owed to nonresidents by residents. The debtors can be governments, corporations or citizens. External debt may be denominated in domestic or foreign currency. It includes amounts owed to private commercial banks, foreign governments, or international financial institutions such as the International Monetary Fund (IMF) and the World Bank.
In economics, the monetary base in a country is the total amount of money created by the central bank. This includes:
A country's gross government debt is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit occurs when a government's expenditures exceed revenues. Government debt may be owed to domestic residents, as well as to foreign residents. If owed to foreign residents, that quantity is included in the country's external debt.
Foreign exchange reserves are cash and other reserve assets such as gold and silver held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence the foreign exchange rate of its currency, and to maintain confidence in financial markets. Reserves are held in one or more reserve currencies, nowadays mostly the United States dollar and to a lesser extent the euro.
Money creation, or money issuance, is the process by which the money supply of a country, or an economic or monetary region, is increased. In most modern economies, money is created by both central banks and commercial banks. Money issued by central banks is a liability, typically called reserve deposits, and is only available for use by central bank account holders, which are generally large commercial banks and foreign central banks. Central banks can increase the quantity of reserve deposits directly, by making loans to account holders, purchasing assets from account holders, or by recording an asset, such as a deferred asset, and directly increasing liabilities. However, the majority of the money supply used by the public for conducting transactions is created by the commercial banking system in the form of commercial bank deposits. Bank loans issued by commercial banks expand the quantity of bank deposits.
Modern monetary theory or modern money theory (MMT) is a heterodox macroeconomic theory that describes currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires. According to MMT, governments do not need to worry about accumulating debt since they can pay interest by printing money. MMT argues that the primary risk once the economy reaches full employment is inflation, which acts as the only constraint on spending. MMT also argues that inflation can be controlled by increasing taxes on everyone, to reduce the spending capacity of the private sector.
Flow of funds accounts are a system of interrelated balance sheets for a nation, calculated periodically. There are two types of balance sheets: those showing
Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are: medium of exchange, a unit of account, a store of value and sometimes, a standard of deferred payment.
In financial economics, a liquidity crisis is an acute shortage of liquidity. Liquidity may refer to market liquidity, funding liquidity, or accounting liquidity. Additionally, some economists define a market to be liquid if it can absorb "liquidity trades" without large changes in price. This shortage of liquidity could reflect a fall in asset prices below their long run fundamental price, deterioration in external financing conditions, reduction in the number of market participants, or simply difficulty in trading assets.
Paper wealth means wealth as measured by monetary value, as reflected in price of assets – how much money one's assets could be sold for. Paper wealth is contrasted with real wealth, which refers to one's actual physical assets.
The Australian government debt is the amount owed by the Australian federal government. The Australian Office of Financial Management, which is part of the Treasury Portfolio, is the agency which manages the government debt and does all the borrowing on behalf of the Australian government. Australian government borrowings are subject to limits and regulation by the Loan Council, unless the borrowing is for defence purposes or is a 'temporary' borrowing. Government debt and borrowings have national macroeconomic implications, and are also used as one of the tools available to the national government in the macroeconomic management of the national economy, enabling the government to create or dampen liquidity in financial markets, with flow on effects on the wider economy.
Domestic liability dollarization (DLD) refers to the denomination of banking system deposits and lending in a currency other than that of the country in which they are held. DLD does not refer exclusively to denomination in US dollars, as DLD encompasses accounts denominated in internationally traded "hard" currencies such as the British pound sterling, the Swiss franc, the Japanese yen, and the Euro.
The credit channel mechanism of monetary policy describes the theory that a central bank's policy changes affect the amount of credit that banks issue to firms and consumers for purchases, which in turn affects the real economy.
The Balances Mechanics is a work and mean of economics, comparable with Stock-Flow Consistent Modelling. Statements of Balances Mechanics are not based on assumptions and preconditions of a model but are of trivial arithmetic nature, usually shaped as equation and universal without restrictions. Balances Mechanics were developed by Wolfgang Stützel and published in his books Paradoxa der Geld- und Konkurrenzwirtschaft(Paradoxes of Competition-Based Monetary Economies) and Volkswirtschaftliche Saldenmechanik(Balances Mechanics of Economics).
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