lecture6
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Bank Panic
Bank Panic in Argentina in 2001
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The Central Bank
– Partial reserve in depository institutions – Bank panic: many people withdraw in the same time – Need an organization to help commercial banks during bank panic
u
Examples: Gold, silver, cigarettes
• Fiat money is used as money because of government decree.
u u
It does not have intrinsic value. Examples: Coins, currency, check deposits.
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Central Bank in China
• The People’s Bank of China, PBOC • China Bank Regulation Commission
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Balance Sheet of PBC 2009
国外资产 Foreign Assets 外汇 Foreign Exchange 163731. 49 150784. 95 337.24 179720. 25 166460. 89 669.84 储备货币 Reserve Money 货币发行 Currency Issue 金融性公司存 款 Deposits of Financial Corporations 其他存款性公 司 Other Depository Corporations 其他金融性公 司 Other Financial Corporations 不计入储备货币的金融性公司 存款Deposits of financial corporations excluded from Reserve Money 发行债券 Bond Issue 国外负债 Foreign Liabilities 政府存款 Deposits of Government 自有资金 Own Capital 其他负债 Other Liabilities 总负债 Total Liabilities 129653. 44 47672.6 6 81980.7 8 81837.8 9 133406. 64 40504.7 8 92901.8 6 92797.9 5
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Creating Deposits by Making Loans
• To see how banks create deposits by making loans, suppose the required reserve ratio is 25 percent. • A new deposit of $100,000 is made. • The bank keeps $25,000 in reserve and lends $75,000. • This loan is credited to someone’s bank deposit. • The person spends the deposit and another bank now has $75,000 of extra deposits. • This bank keeps $18,750 on reserve and lends $56,250.
slide 3
Liquidity
• Liquidity is the ease with which an asset can be converted into the economy’s medium of exchange.
4
Types of Money
• Commodity money takes the form of a commodity with intrinsic value.
2
Money: functions
1. medium of exchange we use it to buy stuff 2. store of value transfers purchasing power from the present to the future 3. unit of account the common unit by which everyone measures prices and values
5
Currency in Prison
cigarettes
6
Money in the United States Today
• Money in the United States consists of Currency: the paper bills and coins in the hands of the public. Deposits at banks and other depository institutions
货币黄金 Monetary Gold
其他国外资产 Other Foreign Assets
12609.3 1 16195.9 9
12589.5 1 15676.7 4
对政府债权 Claims on Government
142.9
103.9
其中:中央政府 Of which: Central Government 对其他存款性公司债权 Claims on Other Depository Corporations 对其他金融性公司债权 Claims on Other Financial Corporations 对非金融性公司债权 Claims on Non-financial Corporations 其他资产 Other Assets 总资产 Total Assets
16
How Banks Create Money
• The process continues and keeps repeating with smaller and smaller loans at each “round.” • This figure illustrates the money creation process.
Lecture 8 Business Cycles (2) Money and Monetary System
Se Yan Guanghua School of Management Peking University Spring 2011
1
Money: definition
Money is the stock of assets that can be readily used to make transactions.
17
The Money Multiplier
The money multiplier is the reciprocal of the reserve ratio:
M = 1/R
In China a reserve requirement R = 7% The multiplier is 14
18
• Checkable deposits are money, but checks are not– checks are instructions to banks to transfer money. • Credit cards are not money. Credit cards enable the holder to obtain a loan quickly, but the loan must be repaid with money.
10
Money in China
Type M0 Amount 2003.12) (2003.12) 19,746.2亿元
(人均1,969元)
Definition Currency in circulation M0+ 活期存款 M1+ 定期存款 储蓄存款 其他存款
M1 M2
84,118.8亿元
(人均8,387元)
219,226.8亿元
(人均21,857元)
11
资料来源:中国人民银行统计季报,2004-1,表2.7(2),24-25页。
M2/GDP in China
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Depository Institutions
– A depository institution is a firm that accepts deposits from households and firms and uses the deposits to make loans to other households and firms. – The deposits of three types of depository institution make up the nation’s money: Commercial banks Thrift institutions Money market mutual funds
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M1 and M2
• This figure illustrates the composition of these two measures in 2003 and shows the relative magnitudes of the components of money.
9
Checks and Credit Cards?
7
M1 and M2
– The two main official measures of money in the United States are M1 and M2. – M1 consists of currency outside banks, traveler’s checks, and checking deposits owned by individuals and businesses. – M2 consists of M1 plus time deposits, savings deposits, and money market mutual funds and other deposits.
13
The Economic Functions of Depository Institutions
• Depository institutions make a profit from the spread between the interest rate they pay on their deposits and the interest rate they charge on their loans. • This spread exists because depository institutions Create liquidity Minimize the cost of obtaining funds Minimize the cost of monitoring borrowers Pool risk
14
Reserves: Actual and Required
– The fraction of a bank’s total deposits held as reserves is the reserve ratio. – The required reserve ratio is the fraction that banks are required, by regulation, to keep as reserves. Required reserves are the total amount of reserves that banks are required to keep. – Excess reserves equal actual reserves minus required reserves.