Tuesday 17 April 2018 at 10 am / Marib Press – Agencies
It is often heard during the economic discussions that the government prints money and a copy of the $ 100 paper that comes out of the printing press. However, this is not the case when the government increases the money supply. In modern economies, money is created by creating immaterial money.
Central banks do not have the ability to print paper or metal coins – the Treasury does.
What exactly happens?
Before we start
To make the explanation simple, here are some of the terms you’ll need to know before proceeding.
In this article we will refer to the process of making money in the United States while preserving the basic concepts necessary to understand the bigger picture.
Capital: – Funds, credit and other forms of financing used for spending and / or investment.
Cash supply: – Total capital available.
Money industry: – When the central bank (Fed in the United States of America) of a country increases the money supply
Commercial Banks: – Is the bank that provides services such as (acceptance of deposits, providing commercial loans, offering investment products) and so on and deals with large companies and projects and not individuals.
How do I print money?
When the term money-printing is used, it usually refers to one of two processes in order to increase money supply.
– In one operation, the Fed buys financial assets (do not worry too much about what these assets are, just think they are a large amount of money in a non-physical form) from commercial banks.
The money used by the Fed-Fed in this process is money coming from nowhere, not the Fed’s pre-owned funds, giving commercial banks more cash to lend to customers, injecting new money into the cash supply To this process with quantitative easing -Quantitative Easing.
– In the second process, the Federal Reserve Bank (FED) provides a loan to a commercial bank using new funds. This bank maintains a fixed percentage of the total loan amount as a deposit and uses the remaining amount of the loan to extend loans to other commercial banks. After you get the loan, you do the same thing – they keep a fixed percentage of the total loan amount as a deposit and lend the remaining amount as desired. When these loans were money, they would lead to an increase in money supply.
As is clear above, currency is not printed in either of these two operations, and very little of the money supply of the United States is in the form of a physical currency.
Commercial banks may withdraw cash from the Federal Reserve Bank (FED), which changes the format of the currency from electronic to paper.
The paper money is what is actually printed, and the worn-out currency can be replaced with new ones. The dollars that are printed are basically paper before they are assigned an economic value.
What does this mean for the US dollar?
To explain what you do to print money in US $ we will provide an example
Take yourself as an example, you are special and you are valuable.
Now let me have copied you a million times, now there are a million of you and you are no longer special and it is now easy to get you.
Take this illustration now and apply it to the US Dollar.
This dear reader is inflation, which is why the US dollar depreciated under inflation.
What is gold related to this
Why does gold provide a major safeguard against inflation?
Due to several reasons, in line with this article, you can not print gold. Gold is a tangible physical asset that can not be found in the absence of the Federal Reserve with the US dollar.
It is therefore difficult to devalue gold under inflation.
As an example:
We find that $ 100 in 2000 will buy $ 82 worth of groceries in 2013
While $ 100 in 2000 will buy $ 470 in groceries in 2013