We used to think of coins and bills as money, but today money no longer has to jingle or crunch. Where does money come from in the modern world, who controls its amount and how much should there be in the country?
How did the money come about?
Shells, skins and horns of killed animals, tea, silk, wheat, cocoa beans - all this at different times and in different parts of the world performed (and still does) the role of money. If you are interested in the history of the development of the monetary system, briefly talks about it.
Where does the money come from?
Money is issued by the Bank. He estimates how much cash the economy needs and starts producing the required number of notes and coins. A special state company, prints banknotes and mints coins by order of the Bank (the coins are minted by mints).
What is money (banknotes, coins) made?
The Bank calculates the amount of money issued and predicts how much it will be needed in the future. Moreover, he not only predicts the exact amount of money that needs to be printed, but also plans by purchase: how many banknotes with a face value of $ 100, and how many - $ 1, in which banknotes to bring money to the Surgut oil workers, and in which ones - to the southern regions.
How to check the authenticity of banknotes?
Moreover, the money that exists physically (cash) is only a part of all the money in the country. The rest of the money is non-cash - records in the bank accounts of people and companies. Where does this money come from? They are created by commercial banks.
How do commercial banks create money?
Let's say you open a deposit in a bank, put your money on it - $ 10000. They do not cease to be yours, you can withdraw them at any time, but the bank pays you interest for using them, for example, lending 9000 to another person, but already on credit. It turns out that the amount of money has increased, although physically there is no more money. You keep your 10000 in deposit and receive interest. The bank's client spends the 9000 loan granted to him and pays interest on it.
At the same time, the amount of cash left was the same as it was.
What determines the amount of cash in the country's economy?
Cash is only a fraction of all the money in the country. Their number depends:
In Switzerland, due to tradition and psychology, citizens love cash. There are many stories about the Swiss who keep very large sums of money at home. For example, about how the mansion burned down, and with it - a huge amount of money hidden behind the fireplace. But the ending of the story is happy: the burnt remnants of the banknotes were restored according to their numbers, and the Central Bank of Switzerland returned the money to the owner.
In Sweden, residents are indifferent to the hard currency, they use less and less cash. Today, more than 95% of all retail purchases are made by Swedes through electronic payments.
Every year the need for cash is decreasing - this is the general trend in the world. Modern payment instruments are developing - payment by means of payment cards or a mobile phone. For example, in our country, more and more people pay for purchases by bank transfer, at the beginning of 2008, banks issued about 300 million cards, and at the end of 2020 - already 580 million.
What is e-money?
Electronic money is a type of non-cash money that is in a bank account. Using prepaid cards or e-wallets, you can use them to pay for goods and services, including on the Internet. They are convenient and facilitate transactions because they do not require the client to open a bank account.
And how much money should there be in the country?
There is no exact figure, and it is not important. It is the dynamics, the rate of growth or contraction of the volume of money that is important. As a rule, during a period of economic recovery, the amount of money (the so-called money supply, the aggregate of all money in the economy) in the country grows, during a recession it decreases.
For example, in 2008-2009, during the crisis, there was a colossal contraction of the money supply. In a normal situation and with a normal development of the economy, the amount of money grows. The more actively the economy develops, the more it requires money.
But there may be extra money. The central bank monitors the amount of money in the country: if the growth rate of the money supply exceeds those that it predicted, then there is a risk of not holding back inflation. Why is there more money? The economy did not absorb this money, or was there an accidental release of money? This is what the central bank is dealing with.
As a rule, for the central bank of a country, the amount of money is not a critical, but an important indicator of the state of the economy. The bank does not have the task of managing the money supply, it does not need to be artificially limited or increased, it is determined by the economy.
How did the money come about?
Shells, skins and horns of killed animals, tea, silk, wheat, cocoa beans - all this at different times and in different parts of the world performed (and still does) the role of money. If you are interested in the history of the development of the monetary system, briefly talks about it.
Where does the money come from?
Money is issued by the Bank. He estimates how much cash the economy needs and starts producing the required number of notes and coins. A special state company, prints banknotes and mints coins by order of the Bank (the coins are minted by mints).
What is money (banknotes, coins) made?
The Bank calculates the amount of money issued and predicts how much it will be needed in the future. Moreover, he not only predicts the exact amount of money that needs to be printed, but also plans by purchase: how many banknotes with a face value of $ 100, and how many - $ 1, in which banknotes to bring money to the Surgut oil workers, and in which ones - to the southern regions.
How to check the authenticity of banknotes?
Moreover, the money that exists physically (cash) is only a part of all the money in the country. The rest of the money is non-cash - records in the bank accounts of people and companies. Where does this money come from? They are created by commercial banks.
How do commercial banks create money?
Let's say you open a deposit in a bank, put your money on it - $ 10000. They do not cease to be yours, you can withdraw them at any time, but the bank pays you interest for using them, for example, lending 9000 to another person, but already on credit. It turns out that the amount of money has increased, although physically there is no more money. You keep your 10000 in deposit and receive interest. The bank's client spends the 9000 loan granted to him and pays interest on it.
At the same time, the amount of cash left was the same as it was.
What determines the amount of cash in the country's economy?
Cash is only a fraction of all the money in the country. Their number depends:
- on how developed and widespread modern payment instruments are (bank cards, payment via mobile communications and the Internet);
- from the infrastructure (are there enough ATMs, payment terminals, devices for accepting payment cards);
- on the scale of the economy and its needs;
- from the relationship to cash in the country.
In Switzerland, due to tradition and psychology, citizens love cash. There are many stories about the Swiss who keep very large sums of money at home. For example, about how the mansion burned down, and with it - a huge amount of money hidden behind the fireplace. But the ending of the story is happy: the burnt remnants of the banknotes were restored according to their numbers, and the Central Bank of Switzerland returned the money to the owner.
In Sweden, residents are indifferent to the hard currency, they use less and less cash. Today, more than 95% of all retail purchases are made by Swedes through electronic payments.
Every year the need for cash is decreasing - this is the general trend in the world. Modern payment instruments are developing - payment by means of payment cards or a mobile phone. For example, in our country, more and more people pay for purchases by bank transfer, at the beginning of 2008, banks issued about 300 million cards, and at the end of 2020 - already 580 million.
What is e-money?
Electronic money is a type of non-cash money that is in a bank account. Using prepaid cards or e-wallets, you can use them to pay for goods and services, including on the Internet. They are convenient and facilitate transactions because they do not require the client to open a bank account.
And how much money should there be in the country?
There is no exact figure, and it is not important. It is the dynamics, the rate of growth or contraction of the volume of money that is important. As a rule, during a period of economic recovery, the amount of money (the so-called money supply, the aggregate of all money in the economy) in the country grows, during a recession it decreases.
For example, in 2008-2009, during the crisis, there was a colossal contraction of the money supply. In a normal situation and with a normal development of the economy, the amount of money grows. The more actively the economy develops, the more it requires money.
But there may be extra money. The central bank monitors the amount of money in the country: if the growth rate of the money supply exceeds those that it predicted, then there is a risk of not holding back inflation. Why is there more money? The economy did not absorb this money, or was there an accidental release of money? This is what the central bank is dealing with.
As a rule, for the central bank of a country, the amount of money is not a critical, but an important indicator of the state of the economy. The bank does not have the task of managing the money supply, it does not need to be artificially limited or increased, it is determined by the economy.
