At 05:04 PM 6/02/03 +0200, you wrote: >Reserve Bank creates one billion new credit on 'pressure' on money >supply. It is not yet money (?)
How? If it buys a bond from a private holder, with the new reserves backed by the new asset ... obviously, that's money. If the Treasury writes a cheque, it is deposited by the recipient and the cheque clears, its actually money before the reserves are, strictly speaking, created (at least in Australia) since Treasury cheques are credited to your account immediately. If it lends to a commercial bank, the reserves are assets at the bank, use to meet demands for cash or interbank settlements. If they are used to meet demands for cash, then they become money, and if they are used to meet demands for interbank settlements, they are part of the assets backing credit-money. On the functionalist definition, its money if its directly available to be used for exchange, to settle contracts for deferred payment, or as a store of value. Of course, every approach is free to define "money" any way they like, but if they depart from the above definition, then they need a substitute definition for the thing that does the above stuff. Under a 100% reserves system instead of a fractional reserves system, granting a loan would require a loan of reserves from the reserve bank. If that was two transactions you could say that the reserves are a seperate asset backing the money, and if it was one transaction with the bank simply intermediating loans from the reserve bank, then all reserves would be money directly. The difference would just be semantic, though, since there would be no change in liquidity in the system when money was withdrawn as cash or deposited on account. However, it would have to be a tap issue system, or otherwise near money substitutes would be developed that would play the role of money for some transactions, and eventually you would end straight back at a fractional reserves system. ==^================================================================ This email was sent to: archive@mail-archive.com EASY UNSUBSCRIBE click here: http://topica.com/u/?a84IaC.bcVIgP.YXJjaGl2 Or send an email to: [EMAIL PROTECTED] TOPICA - Start your own email discussion group. FREE! http://www.topica.com/partner/tag02/create/index2.html ==^================================================================
