Monetary System Notes PDF

10 The Monetary System reference go to the cafeteria can I Overview buy smt w it role of in econ forms of money role of central bank in econ how money is crea...

10 The Monetary System reference go to the cafeteria can I Overview buy smt w it role of in econ forms of money role of central bank in econ how money is created how gov controls qty money in circulation currency Money asset Functions of money 0000 medium of exchange commodity Ifiat money what can exchangefor G S money money J unit of account use asset w no asset w intrinsic cancount it unit values can be intrinsicvalue used to facilitate EX giving cow store of value exchange of in exchange for if wanna consume GIS EXicocobeanghbreakfas.tw it now can store shells cows tea bricks etc diff I prefer money Thaversome but all it's has value Tvalue bicwebelieve it has value an asset even though money is not money EX Is this money in e Confirm 99 medium of unit of stores exchange account value Pigg ng Euro tab X X loonie credit card data cash V.tn bitcoins ffqdjh.dk a fefn to or Is credit card an asset NO money Bank of gov bonds Bank of Canada Boc T GTexpansion controls money supply VIYiopeppaagntf gov.baance nobody but Boc can print money debt bank of banks have an accountin Boc who makes the transfer  A issues money commer RBC TD BMO Scotiabank CIBC banks I P functions 1 Issue currency 2 Act as banker to commercial banks 3 Act as banker of the Canadian government 4 Controls supply MS monetary policy money gov issues bonds firms issue stocks Money Supply MS how much money there is in the economy Case 1 No banking system Case 2 The 100 reserve banking system Case 3 The fractional reserve banking system  How much money is there in the economy time of kings Queens Éyin bankingstem Case 1 banking system Case 2 Epidney Public holds all money Public makes as deposits in commercial currency CEYTency.to Ms Currency see howmuch banks banks hold moneyhave coinstbills 100 of deposits as reserves YEoney ftp.eiiims.be an tt its Potential 10 of 90stays to someone else base Case 3 Assets Liabilities Fractional reserve banking system Eastititney Commercial Banks Ms R reserve r Assets Y e ratio 4 opposites Liabilities giving fraction R Deposits D of deposit qq.f.fr ii Eettes that banks Loans L Time hold as the reserves end of I in ui D iTiii depositsthat remain iti at se T account Examples Ex RBC A L R 20 100 deposit 4 80 OF 100 EX TD VS RBC TD bank RBC bank has has 0 RR Fee 10 ER 9 favescert 20 TR 10 total reserve TR NW R 101 if bank is low on reserves must borrow from someone other bank or Boc as last min case if Boc reduces to R 5 of reserves take 5 from reserve can lend them since lot to 51  EX Ft posit where R 101 Bank 1 Bank 2 Bank 3 A L A L A L R 9 111 90 B 10 D 100 R 8.1 D 81 do 4 4.490 1 729 IT httpttypfnf raws loan fe3 newpersing puts draws this person deposittransaction loan borrows 90 goes to makes draws to spend then another deposit band person deposits EX via money purchasing in his of goods bank who brings the 90 to her bank  MS in EX DD demand deposits currency Ms 81 would currency 14721 be if it YES sayin pb MM here 10 money multiplier 100 10 1000 Fm up to 1000 could be less Rinto smaller R creates more w out MS more money for econ Ehs if r 21 MM 50 2 2 Effffeposit money comes from borrowing lending if have major pb call world bank  Money Multiplier amt of money banking system generates w each dollar of reserves it hypes at gener money egn money multiplier MM resay if R MS b c D multipliedbysmaller if R Ms b c D multiplied bybigger Beef 0 bic r lot Tpatsksblck101 cMs ph mtEyifeposit  Money Reserves RR Required reserves amt of reserves resulting from applying reserve ratio to total deposits means what to D RR Reserve vats applied ER Excess reserves difference btw actual reserves in Bank required reserves ER actual bank required bank reserves reserves amt available for bank to make new loans TR Total reserve required reserves excess reserves TR RR ER  Bank Runs ppl running to bank to retrieve their money when ppl trust bank if bank collapses ms b c in econ central bank inserts into econ if Boc injects more than econ needs causes inflation Monetary Policy Tools at b 1 Open Market Foreign exchange market operations 2 Changes in reserve requirements 3 Changes in the Overnight Rate  1 a Open market b Foreign FOREX Operations Exchange Market MSA when Boc Bankof sterilization Operations Boebuying Canada buys bonds w CAD currency yhkht.ie to keep MstwhenBoCbuys foreign currency Ms when Boc sells bonds w CAD currency is paid w CAD currency neifbuy ime if itfi Painet 1bon8sPEs9hmElbe itiigii fiIE is fette Dux no Reserves when BoC Iiiii buys ANYTHING i.e apples Entity Short term gov bonds canbe MS when Bocsells Yire toredforever easytobuysell onopenmarket Bocchoosescommoditytobuy selldaily electronictransactions billions of gov foreigncurrency is 11 paid w CADcurrency 1 bonds in min NCO BOCbuys sells short termbonds i.eTreasury Bills or T Bills Quantitative Easing purchasedsaleofnon gov curities orgov securities w long termmaturity terms buyingorsellinggov bonds tochangems Ntp The mag c timphg Ejitsetter 2 Changes in reserve requirements RR mishap so Ions money then ms bc in economy Effigy banks Mahany a recap Reserves loans i in econ WMS 3 Changes in the Overnight Rate BOC's tool for IT control is to targ primary for overnight rate AKA policy interestrate anti inflation BOChasbeen policy usingthispolicyrecently Every business day is moved back forth btw CAD's financial institutions To balanceout payments fin institutions canborr money from each other for 1 day in overnight market Bank sets target for interest rate they want fin institutions to charge each other when make overnight loan  When Central Bank policyRate commercial banks have incentives to hold bigger fraction of deposits as reserves b c loans R reserve i loans MM deposits Yake money created become policy rates more 7 11 The Episits cautious commercial banks interest rate Paulhuskeep reserves lending ms Boc affects all economies i.e prime rate of credit comme cial banks used for mortages lines of interest rates paid on deposits savings int rate banks cautious lend policy interest rate owntestate ÉÉ Ihoos limits force you to choose lending exam overnight before railey helpingexcess 4098dam Bail Iammmindwh.tn ÉÉÉ k in bank 2 Floor 4 system now RFarget ms ftp.thh isihhith.io si overnight insreaaso connection w inflation  market EX Overnight Bank 1 Bank 2 A L R 1O A L 100101 SIERI 0 deposit 201k 100 D 9014 100 80 LT Or 1 fw BOC 2ⁿᵈ customer controlthis takes 10 person if only from reserve broughtinstead 10 BUT there is deposit end day which would another bank like this still ending the b c R 10 patriot spend day like this must be respected Puthoff will lend to person closedoors go both sides must to secret overnightmarket where can have access to other c b bankwherebothcan make loans be equal multiplymoney to each other causes shortage canogg interest rate they onlyasbank charge to each other of R of EI overnight rate 199 112.1short term loan Monetary Policy Summary TO MS TO MS buy bonds or FOREX foreignexchange Sell bonds or FOREX reserve requirements reserve requirements policy rate 41 policy rate Key Bank rate i key bankrate overnight bank overnight rate rate howdoes exchanging rate more btw banks MS Limitations for controlling Ms Boc has 2 pbs b c of fractional reserve banking it control amt that households choose to hold as deposits in banks commercial bankers choose to lend Zero bound on nominal interest rate R it go below zero  Liquidity Trap inability to monetary use policy bicnom.int rate R are too low fall below zero bound dreduce I R if already when cwant ltaltherereo.RS tolou more EEE asset.ae Ea e.g much amshow m oneyin Rhow much p alepsisets econ keep aloansome some iiiiiiiiiii.mn i siggbypsustemofamaneyuse.ly iiiiiiiiiiii.EE.IE i ii t ii imiiii Twhateackgs8 ITEI.ae dis ebantmamaibannwatmmrenren.ee amm ooranta y.EE does Msport 71in depending on policy reserve Loans L ftyOliau sn so Oborn or have assets anymon