IMF Working Papers

Money Creation in Fiat and Digital Currency Systems

By Marco Gross, Christoph Siebenbrunner

December 20, 2019

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Marco Gross, and Christoph Siebenbrunner. Money Creation in Fiat and Digital Currency Systems, (USA: International Monetary Fund, 2019) accessed December 30, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Bank credit, Banking, Central banks, Commercial banks, Currencies, Currency issuance, Financial institutions, Monetary base, Money

Keywords: Bank, Bank agent, Bank credit, Bank transfer, Central bank digital currencies, Commercial banks, Currencies, Currency issuance, Deposit account, Equity ratio, Global, Lending, Liquid funding, Monetary base, Monetary policy, Money creation, Money creation understanding, Money creation view, Money stock, Nonbank, Nonbank lending, Process, WP

Publication Details

  • Pages:

    40

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2019/285

  • Stock No:

    WPIEA2019285

  • ISBN:

    9781513521565

  • ISSN:

    1018-5941

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