Credit Control by Overfunding

Geoffrey W. Gardiner

Chapter 7 in The Evolution of Creditary Structures and Controls, 2006, pp 94-100 from Palgrave Macmillan

Abstract: Abstract A PURCHASE of government stock by the government or the Central Bank from the public can cause a problem for the banks. It brings about an increase in their deposits, and as a consequence the banks may have to increase their reserves. This limits the banks’ ability to expand further the amount of credit given to the public. Surprisingly, the monetary theorists are under the impression that it is better to do the opposite if the government wishes to restrict the money supply. Indeed, they advocate that the government should over-fund, by selling government stocks to the public rather than purchasing them; overfunding simply means that the government borrows money it does not need.

Keywords: Money Supply; Cash Hold; Capital Ratio; Capital Base; Real Investment (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-28844-7_7

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DOI: 10.1057/9780230288447_7

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