Money Creation in Fiat and Digital Currency Systems

Marco Gross and Christoph Siebenbrunner

No 2019/285, IMF Working Papers from International Monetary Fund

Abstract: To support the understanding that banks’ debt issuance means money creation, while centralized nonbank financial institutions’ and decentralized bond market intermediary lending does not, the paper aims to convey two related points: First, the notion of money creation as a result of banks’ loan creation is compatible with the notion of liquid funding needs in a multi-bank system, in which liquid fund (reserve) transfers across banks happen naturally. Second, interest rate-based monetary policy has a bearing on macroeconomic dynamics precisely due to that multi-bank structure. It would lose its impact in the hypothetical case that only one (“singular”) commercial bank would exist. We link our discussion to the emergence and design of central bank digital currencies (CBDC), with a special focus on how loans would be granted in a CBDC world.

Keywords: WP; bank; lending; nonbank; nonbank lending; process; Money creation; monetary policy; central bank digital currencies; money stock; bank agent; money creation view; bank transfer; deposit account; money creation understanding; equity ratio; liquid funding; Currency issuance; Bank credit; Commercial banks; Monetary base; Currencies; Global (search for similar items in EconPapers)
Pages: 40
Date: 2019-12-20
New Economics Papers: this item is included in nep-mac, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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