Central Banking Flashcards
(13 cards)
Inputs of Monitoring Money
Includes:
- Deposits
- Notes in Circulation
- Vault Cash
- Settlement Balances
Monetary Aggregates, Measures of Money Supply
Monetary Aggregates:
- Deposits
- Notes in Circulation
Total Bank Reserves
Total Bank Reserves = Vault Cash + Settlement Balances
Monetary Base
Monetary Base:
- Notes in Circulation
- Vault Cash
- Settlement Balances
(Vault Cash and Settlement Balances = Total Bank Reserves)
Central Bank Assets
- Government Securities
- Advancements to Banks (lending to Banks)
Central Bank Liabilities
Central Bank Relationship
Central Bank Liability = Monetary Base
- Notes in Circulation
- Vault Cash
- Settlement Balances
(Vault Cash and Settlement Balances = Total Bank Reserves)
Central Bank Relationship
Central Bank Liability = Monetary Base
MB and Monetary Aggregates
MB itself is not monetary aggregates
M1+= Currency in circulation + all chequable deposits M1++
Currency in circulation + all chequable deposits
M1++
Currency Currency in circulation circulation + all chequable chequable deposits deposits + all non‐
chequable deposits
Monetary Base is
Monetary Base is called High Power Money
Please explain how each of the three players in the money supply process influences the
supply of money.
The three players are Central Banks, Commercial Banks and Depositors
Central Banks have great control over monetary base or high powered money which is closely linked to monetary supply. They can primarily affect MB by changing interest rates and the required deserve ratio
Commercial Banks influence money supply by their ability to acquire deposits and fund investments in the economy
Deposits influence money supply by choosing to either deposit there cash in banks or to keep it for themselves. Deposits have a great effect on increasing money supply and holding more cash reduced money supply.
Sterilization
conducting an open market operation to counter the effect of: the foreign exchange intervention on the monetary base.
… net effects: no effect on the monetary base, and no effect on the exchange rate
You’re setting it back to what it was before foreign exchange intervention
