How money is created ?
Money is a verifiable record that is widely recognized as payment for goods and services, as well as a current medium of exchange in the form of coins and banknotes. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.
The 3 ways how money is created
physical money created by governments
It comes in to form either paper money also known as banknote or coin is about 3-8% of the economy money which is created by governments and they make an income from printing money known as seigniorage.
It reduces their debt and taxpayer burden. One of the reasons they don’t print a lot is not to cause inflation.The more money you have in circulation the less it’s worth for example if massive inflation takes place someone with 1 million dollars but that million-dollar buys an orange how much is a million dollars actually worth because of inflation money become worthless.
you can think of money as a measuring stick of value that is highly elastic that can change depending on circulation.
PRİVATE BANKS AND DEBT-BASED MONEY
Today a vast amount of money is created by the private bank sector.
97% of digital money is created by banks after invented digital money because of bank runs it is when a depositor try to get their money at once but the bank doesn’t have it and governments outsource to the creation of digital money. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money in digital form.
Quantitative easing or QE is a new form of money that was invented by the Japanese central bank in 1989. And later popularized by the federal reserve in the USA in 2008 during the crisis.
Quantitative easing is a monetary policy intended to stimulate an economy in a recession which is usually used when inflation is very low or negative.QE is intended to boost the amount of money in the economy directly by purchasing assets, mainly from non-bank financial companies
Central banks have no savings in their account, can’t go bankrupt but can create infinite money and buy government bonds, which is an exchange of money for a contract that a government will pay back with interest. It is paid back by the future citizens of a county either through taxation or inflation.
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