The current leadership of the country establishes at the legislative level a limit on the issuance of new banknotes, based on the rules on partial reserves.
The partial reservation rate in each country is different and is set arbitrarily and may vary depending on the decision of the country’s leadership.
If not so long ago, the banking system was required at the legislative level in the bank’s reserve depository to have at least one gold dollar per ten credit accounts formed, then today there are no such restrictions on the ratio of gold coins and credit finances, but also on the ratio of existing cash to new debt money.
To date, bank reserves operate on the basis of two requirements
The first requirement is that the bank’s reserve should consist of the amount of the country’s national currency held by private banks in the central bank. The second requirement is that it should consist of the amount of debt finance available that is already in the accounts of this bank.
All this is easy to demonstrate with an example. Let’s imagine that a new bank is opening and it does not yet have new investors, but the founders of the bank have already made a deposit in the amount of one thousand one hundred eleven dollars and twelve cents to the country’s central bank in real paper currency in accordance with the requirements and norms in percentage terms Bank reserve nine to one.
First action. Doors open at the bank and a client-borrower appears with the need to receive an amount equal to 10 thousand dollars for the purchase of personal vehicles. With the existing percentage ratio of the reserve in the country’s central bank nine to one, one can, on completely legal grounds, create nine times as much money from the “air” as the size of the reserve itself, that is, ten thousand dollars.
The basis for this will be the existence of a debt receipt of the creditor-debtor. This amount in the amount of ten thousand dollars is taken from nowhere, it is virtual, that is, cash is not handed out. This is new money, which is transferred through a computer to the borrower’s bank account, which is issued a bank check for the declared amount, thanks to which the borrower acquires such a desirable vehicle.
Second action. According to the check issued by the bank, the car seller deposits money through the bank to the bank’s current account. But unlike the so-called “strong” money reserved in the country’s central bank, the existing new tax finances, which cannot be increased using the percentage banking ratio, they, on the contrary, are divided into percentage ratios of reserves.
At the existing interest rate of nine-to-one reservation, it becomes possible to create new money in the amount of 9 thousand dollars in the national currency of the country on the basis of ten thousand credit banknotes previously delivered to the bank.
The third action. If the amount of nine thousand dollars comes from a third party to the same bank that created this amount or a completely different bank, then such actions lead to the legal basis for issuing new loan amounts – new money. Only this time the amount will be eight thousand one hundred dollars. This is how the principle of nesting dolls works.
An excellent principle, but we know that every dollar, yuan or ruble in the world is born and immediately issued on credit. It does not happen otherwise. So we pay for the use of money to banks. What exactly do we pay banks for using money? What product or service do they create? True, nothing but money.
What is the cost of money, what is their profitability?
I asked this question to three different people – here is their photo. Their answers I wait in the comments.
Write your versions in the comments.
The process of creating money by a bank is so simple that the mind refuses to believe it.
John Kenneth Galbraith
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