• Latest
  • Trending
  • All
  • Litecoin
  • Ethereum
  • Market
Hierarchies of Money: Why You Use Bank Money But the Bank Wants Reserve Currency

Hierarchies of Money: Why You Use Bank Money But the Bank Wants Reserve Currency

January 31, 2020
White House office seeks public opinion on crypto-climate implications

White House office seeks public opinion on crypto-climate implications

March 26, 2022
Love it or hate it, crypto’s vibe shift is now imminent

Love it or hate it, crypto’s vibe shift is now imminent

March 26, 2022
Save on your hotel - hotelscombined.com
ADVERTISEMENT
BTC, ETH Begin Weekend Close to Key Resistance Levels – Market Updates Bitcoin News

BTC, ETH Begin Weekend Close to Key Resistance Levels – Market Updates Bitcoin News

March 26, 2022
Cryptocurrency Adoption to Grow Significantly This Year in Latam – Bitcoin News

Cryptocurrency Adoption to Grow Significantly This Year in Latam – Bitcoin News

March 26, 2022
Crypto Market Cap Reclaims $2 Trillion as Bitcoin Touched $45K (Weekend Watch)

Crypto Market Cap Reclaims $2 Trillion as Bitcoin Touched $45K (Weekend Watch)

March 26, 2022
3 Metrics to Analyze GameFi Projects

3 Metrics to Analyze GameFi Projects

March 26, 2022
PUBG Developer Krafton Partners With Solana Labs to Build Blockchain Games and Services – Bitcoin News

PUBG Developer Krafton Partners With Solana Labs to Build Blockchain Games and Services – Bitcoin News

March 26, 2022
Coinbase to track off-platform crypto transfers in Canada, Singapore, Japan

Coinbase to track off-platform crypto transfers in Canada, Singapore, Japan

March 26, 2022
Nevada Man Pleads Guilty In $722 Million Bogus Crypto Investment

Nevada Man Pleads Guilty In $722 Million Bogus Crypto Investment

March 26, 2022
Luxury Italian Retailer Michele Franzese Moda Reveals Fashion Brand Accepts Crypto Payments – Bitcoin News

Luxury Italian Retailer Michele Franzese Moda Reveals Fashion Brand Accepts Crypto Payments – Bitcoin News

March 26, 2022
Decentralization, DAOs and the current Web3 concerns

Decentralization, DAOs and the current Web3 concerns

March 26, 2022
Behind the bipartisan crypto bill that’s coming to Congress

Behind the bipartisan crypto bill that’s coming to Congress

March 26, 2022
  • About Us
  • Privacy Policy
  • Newsletter
  • Contact Us
Sunday, May 29, 2022
Crypto Top News
Save on your hotel - hotelscombined.com
  • Home
  • Altcoin
    Bitcoin at $44.9k as ETFs touch new highs, altcoins continue green rampage

    Bitcoin at $44.9k as ETFs touch new highs, altcoins continue green rampage

    5 “next bitcoins” that weren’t

    5 “next bitcoins” that weren’t

    Where Does Bitcoin Stand With Depleting Dollar Dominance

    Where Does Bitcoin Stand With Depleting Dollar Dominance

    Crypto Corner: The Sports Slice

    Crypto Corner: The Sports Slice

    Polygon (MATIC) suffers network outage sparking a wave of angry users

    Polygon (MATIC) suffers network outage sparking a wave of angry users

    Goldman Sachs Will Now Offer Its Clients Ethereum Funds Via Galaxy Digital

    Goldman Sachs Will Now Offer Its Clients Ethereum Funds Via Galaxy Digital

    Kava adds EVM support to the network with Ethereum co-chain alpha launch

    Kava adds EVM support to the network with Ethereum co-chain alpha launch

    Crypto Corner: The Sports Slice

    Crypto Corner: The Sports Slice

    Fantom Foundation Responds To Andre Conje’s Departure

    Fantom Foundation Responds To Andre Conje’s Departure

    Total amount of Luna tokens staked down 62% from ATH even amid massive price rally

    Total amount of Luna tokens staked down 62% from ATH even amid massive price rally

  • Bitcoin
    White House office seeks public opinion on crypto-climate implications

    White House office seeks public opinion on crypto-climate implications

    BTC, ETH Begin Weekend Close to Key Resistance Levels – Market Updates Bitcoin News

    BTC, ETH Begin Weekend Close to Key Resistance Levels – Market Updates Bitcoin News

    Cryptocurrency Adoption to Grow Significantly This Year in Latam – Bitcoin News

    Cryptocurrency Adoption to Grow Significantly This Year in Latam – Bitcoin News

    PUBG Developer Krafton Partners With Solana Labs to Build Blockchain Games and Services – Bitcoin News

    PUBG Developer Krafton Partners With Solana Labs to Build Blockchain Games and Services – Bitcoin News

    Nevada Man Pleads Guilty In $722 Million Bogus Crypto Investment

    Nevada Man Pleads Guilty In $722 Million Bogus Crypto Investment

    Luxury Italian Retailer Michele Franzese Moda Reveals Fashion Brand Accepts Crypto Payments – Bitcoin News

    Luxury Italian Retailer Michele Franzese Moda Reveals Fashion Brand Accepts Crypto Payments – Bitcoin News

    APENFT Marketplace Makes NFT Drops in the TRON Ecosystem Accessible – Press release Bitcoin News

    APENFT Marketplace Makes NFT Drops in the TRON Ecosystem Accessible – Press release Bitcoin News

    DOJ Charges Two People in Million-Dollar Scheme to Defraud Investors – Regulation Bitcoin News

    DOJ Charges Two People in Million-Dollar Scheme to Defraud Investors – Regulation Bitcoin News

    After years of doubts and concerns, it is finally Bitcoin’s time to shine

    After years of doubts and concerns, it is finally Bitcoin’s time to shine

  • Cryptocurrency
    • Ethereum
    • Litecoin
  • Blockchain
    Decentralization, DAOs and the current Web3 concerns

    Decentralization, DAOs and the current Web3 concerns

    MIT adds the Bank of England to its stable of CBDC digital currency research partners

    MIT adds the Bank of England to its stable of CBDC digital currency research partners

    Learn about Web3 and how it aims to transform internet services

    Learn about Web3 and how it aims to transform internet services

    European crypto regulatory framework goes to three-way consideration without PoW ban

    European crypto regulatory framework goes to three-way consideration without PoW ban

    Jamaica’s central bank digital currency and the problems it hopes to solve

    Jamaica’s central bank digital currency and the problems it hopes to solve

    LG Electronics adds blockchain and crypto as new areas of business

    LG Electronics adds blockchain and crypto as new areas of business

    Powers On… Biden accepts blockchain technology, recognizes its benefits and pushes for adoption – Cointelegraph Magazine

    Powers On… Biden accepts blockchain technology, recognizes its benefits and pushes for adoption – Cointelegraph Magazine

    IOSCO says DeFi is quickly evolving and ‘cloning financial markets’

    IOSCO says DeFi is quickly evolving and ‘cloning financial markets’

    Stargate Finance attracts $1.9B in six days

    Stargate Finance attracts $1.9B in six days

  • Regulation
    Love it or hate it, crypto’s vibe shift is now imminent

    Love it or hate it, crypto’s vibe shift is now imminent

    Coinbase to track off-platform crypto transfers in Canada, Singapore, Japan

    Coinbase to track off-platform crypto transfers in Canada, Singapore, Japan

    Behind the bipartisan crypto bill that’s coming to Congress

    Behind the bipartisan crypto bill that’s coming to Congress

    US Treasury Secretary Janet Yellen says upcoming crypto regulations will nourish healthy innovation

    US Treasury Secretary Janet Yellen says upcoming crypto regulations will nourish healthy innovation

    Secretary Yellen recognizes ‘benefits of crypto’ despite lingering skepticism

    Secretary Yellen recognizes ‘benefits of crypto’ despite lingering skepticism

    Crypto tax policy framework passes India’s parliament despite pushback from lawmakers

    Crypto tax policy framework passes India’s parliament despite pushback from lawmakers

    US senators Lummis, Gillibrand reveal working on bipartisan crypto legislation

    US senators Lummis, Gillibrand reveal working on bipartisan crypto legislation

    Finally, a proof of work ban is off the table in Europe

    Finally, a proof of work ban is off the table in Europe

    Korean crypto exchanges are now in compliance with the Travel Rule

    Korean crypto exchanges are now in compliance with the Travel Rule

  • Market
    3 Metrics to Analyze GameFi Projects

    3 Metrics to Analyze GameFi Projects

    Coinbase to Label Some Assets as ‘Experimental’ In Bid to Boost Transparency

    Coinbase to Require Recipient Information for Crypto Transfers From Users in Canada, Singapore and Japan

    ‘We Have Entered a Period of Pain,’ Says WazirX CEO of India’s New Tax Laws

    ‘We Have Entered a Period of Pain,’ Says WazirX CEO of India’s New Tax Laws

    White House Wants Public Comments on Crypto’s Energy Use and Environmental Impact

    White House Wants Public Comments on Crypto’s Energy Use and Environmental Impact

    Greener Bitcoin Mining Could Be China’s ‘Trillion-Dollar Present’ to the US

    Greener Bitcoin Mining Could Be China’s ‘Trillion-Dollar Present’ to the US

    Bitcoin Tops $44K Amid Rumors of Terra's LFG Accumulating BTC

    Bitcoin supera los $44.000 entre rumores de compra de BTC por parte de Fundación Terra

    Bitcoin Outperforms as Crypto Bulls Take a Breather

    Bitcoin Outperforms as Crypto Bulls Take a Breather

    4 Reasons Why Bitcoiners Should Pass on El Salvador’s Bitcoin Bond

    4 Reasons Why Bitcoiners Should Pass on El Salvador’s Bitcoin Bond

    Bitcoin Faces Initial Resistance at $46K; Support at $42K

    Bitcoin Faces Initial Resistance at $46K; Support at $42K

  • Prices
  • ICO
  • Travel Websites
No Result
View All Result
Crypto Top News
No Result
View All Result
Home Bitcoin

Hierarchies of Money: Why You Use Bank Money But the Bank Wants Reserve Currency

by Admin
January 31, 2020
in Bitcoin
0
Hierarchies of Money: Why You Use Bank Money But the Bank Wants Reserve Currency


While people tend to think of money as being all the same, the fact is governments and banks use different types of money than the everyday individual. From the top of the economic pyramid of world reserve currencies, down through central bank and commercial bank money, the capacities and function of different kinds of money vary broadly. Beyond M0, M1, and M2 classifications, reserve currencies ultimately afford policymakers opportunities not enjoyable by those holding “downstream” versions of the supply.

Also Read: Money and Democracy: Why You Never Get to Vote on the Most Important Part of Society

728*90
ADVERTISEMENT

Different Money Supplies for Different People

Because various countries classify money differently, understanding the M0, M1, M2, etc., supplies can be somewhat tedious. From the broadest perspective, the two types of money existing worldwide in the current fractional reserve paradigm are central bank money and that of commercial banks. With central banks themselves ultimately relying on world reserve currency and the power to create money directly.

Hierarchies of Money - Why You Use Bank Money But the Bank Wants Reserve Currency
Modern fiat money is not backed by a commodity, but can be created at will by governments.

The popular classification system denominated in M’s generally measures different types of liquidity in overall money supplies. Trading Economics defines M0 for the United States as “the most liquid measure of the money supply including coins and notes in circulation and other assets that are easily convertible into cash.”

MB, or the broader monetary base, includes central bank reserves. The average person does not have power to significantly alter this base. The Fed, however, recently increased its balance sheet by creating over $400 billion from September to the end of December last year, demonstrating the monetary hierarchy.

Hierarchies of Money - Why You Use Bank Money But the Bank Wants Reserve Currency
Unlike central banks, everyday individuals cannot create official money, but must use it.

Money typically becomes classified as M1 when it exits central bank reserves and hits private bank checking accounts and the pockets of spenders. Because commercial and private banks are not required to hold all of this new money as reserves, they can loan most of it out, and other banks receiving these loans can then further loan it out again. This results in something called the ‘money supply multiplier effect,’ which is a staple of fractional reserve banking. As Investopedia clarifies:

[The effect] raises the value of money supply even though no additional physical currency actually exists to support the new amount.

For a simplified breakdown of the different money supply classifications and how the effect comes about, the video below is a handy resource for reference.

World Reserve Currency: The Magic Money of Kings

In short, there is a group that can create money and dictate its policy, and another group that must abide by these decrees and simply use it. As Perry G. Mehrling writes in his short article “Why is money difficult?”:

This process apparently offends common sense understanding of what it means to make a loan—I can only lend you a bicycle if I already possess a bicycle. Even more, it seems to go against a fundamental principle of elementary economics that “there ain’t no such thing as a free lunch”. Against this resistance, I insist that the essence of banking is a swap of IOUs.

Indeed one cannot lend a bicycle they don’t have, but banks can legally loan money which they also don’t have, multiple times over. It becomes easier to see then how some libertarian economists might label fractional reserve banking as hardly distinguishable from a state-sponsored Ponzi scheme. Mehrling points directly to the two kinds of money existing in the current hybrid system stating that “Money is part private (bank deposits) and part public (central bank currency), though in normal times we hardly notice because the two kinds of money trade at par.”

Hierarchies of Money - Why You Use Bank Money But the Bank Wants Reserve Currency

While central banks (which are neither truly public nor private) can print money and hold their own exclusive reserves, as well as dictate policy for subservient banks in the private sector, there is something at the top of the pyramid even they depend on: reserve currency status. A reserve currency has two main aspects:

  1. It’s held in large reserve quantities.
  2. It’s used in international trade.

Gold, whose value originated organically as a commodity in times past, and which eventually made its way to becoming the most saleable good worldwide, is the world’s first true money in a Mengerian sense. As such it can also be seen as the original world reserve currency.

With the advent of fiat money — or money created by governments by decree alone — new assets would soon take turns gaining and losing the title of world reserve currency, often in direct correspondence to political strife and wars. The progression from gold, to gold or silver-backed paper, to unbacked paper money demonstrates a politicization process which is often overlooked in modern times, as the state has become synonymous with money itself in much of mainstream cultural thought.

Hierarchies of Money - Why You Use Bank Money But the Bank Wants Reserve Currency

A distinctive feature of gold is that — like all natural resources — it is limited in supply. As governments and empires sought more and more expansion in times past, they needed to fund conquest and war, and this limitation became financially unbearable. The result was ultimately the system of fractional reserve banking practiced worldwide today, with the U.S. dollar as the unofficial world reserve currency.

With USD as the ‘new unlimited gold,’ power is secured for the United States government in trade much the same way it would have been for a gold-hoarding king of ancient times. Borrowing can be done at lower interest rates, imports become less expensive, and geopolitical power plays are easily made as the world economy relies on the reserve currency creator for survival. However, fiat printers, unlike gold, don’t know limitations. The collapse of fiat reserve currencies occurs when there is an inevitable point of failure at a concrete level, where the market no longer values the currency against the resources it was previously traded for, or truer forms of money.

Hierarchies of Money - Why You Use Bank Money But the Bank Wants Reserve Currency

When the Fiat Hits the Fan

Advocates of crypto often point to the limited supply of bitcoin and the mathematics which governs it in stark contrast to fiat money’s model of unlimited expansion regardless of underlying economic realities. It’s an unpopular position for those who don’t view scarcity as a pressing issue, or who perceive the state to have the sole right to money creation.

For many bitcoiners, this type of ideation misses the mark, as “divine right to rule” when it comes to anything — especially money — seems a terribly outdated and dangerous concept. So while the average person transacts every day with money whose value has been heavily diluted by way of an interminable cascade of IOUs, both private and central banks want to be as close as possible to the source controlling the most hard assets and global money creation itself — the central bank issuing the world’s reserve currency.

What are your thoughts on the different types of money and money supplies? Let us know in the comments section below.


Images courtesy of Shutterstock, Seika Chujo, fair use.


Did you know you can buy and sell BCH privately using our noncustodial, peer-to-peer Local Bitcoin Cash trading platform? The local.Bitcoin.com marketplace has thousands of participants from all around the world trading BCH right now. And if you need a bitcoin wallet to securely store your coins, you can download one from us here.

Graham Smith

Graham Smith is an American expat living in Japan, and the founder of Voluntary Japan—an initiative dedicated to spreading the philosophies of unschooling, individual self-ownership, and economic freedom in the land of the rising sun.





Source link

300*250
ADVERTISEMENT
Admin

Admin

300*250
ADVERTISEMENT
300*250
ADVERTISEMENT
300*250
ADVERTISEMENT
  • Trending
  • Comments
  • Latest
Circle Captures $440 Million in Financing, Rumors of SPAC Deal Follow – Finance Bitcoin News

Circle Captures $440 Million in Financing, Rumors of SPAC Deal Follow – Finance Bitcoin News

May 29, 2021
Grayscale Parent Company to Purchase Ethereum Classic Trust Shares Worth $50 Million

Grayscale Parent Company to Purchase Ethereum Classic Trust Shares Worth $50 Million

June 22, 2021
Spain’s Largest Asset Managers Still Reluctant to Invest in Cryptocurrencies – News Bitcoin News

Spain’s Largest Asset Managers Still Reluctant to Invest in Cryptocurrencies – News Bitcoin News

May 29, 2021
White House office seeks public opinion on crypto-climate implications

White House office seeks public opinion on crypto-climate implications

0
Ethereum Plunges 10% in 48 hours

Ethereum Plunges 10% in 48 hours

0
Public vs Private Blockchain | Ernst & Young’s New Blockchain Prototype

Public vs Private Blockchain | Ernst & Young’s New Blockchain Prototype

0
White House office seeks public opinion on crypto-climate implications

White House office seeks public opinion on crypto-climate implications

March 26, 2022
Love it or hate it, crypto’s vibe shift is now imminent

Love it or hate it, crypto’s vibe shift is now imminent

March 26, 2022
BTC, ETH Begin Weekend Close to Key Resistance Levels – Market Updates Bitcoin News

BTC, ETH Begin Weekend Close to Key Resistance Levels – Market Updates Bitcoin News

March 26, 2022
Crypto Top News

Copyright © 2019 cryptotopnews.com

Navigate Site

  • About Us
  • Privacy Policy
  • Newsletter
  • Contact Us

Follow Us

No Result
View All Result
  • Home
  • Altcoin
  • Bitcoin
  • Cryptocurrency
    • Ethereum
    • Litecoin
  • Blockchain
  • Regulation
  • Market
  • Prices
  • ICO
  • Travel Websites

Copyright © 2019 cryptotopnews.com

  • bitcoinBitcoin (BTC) $ 28,946.00
  • ethereumEthereum (ETH) $ 1,775.96
  • tetherTether (USDT) $ 1.00
  • usd-coinUSD Coin (USDC) $ 1.00
  • bnbBNB (BNB) $ 303.88
  • xrpXRP (XRP) $ 0.383517
  • binance-usdBinance USD (BUSD) $ 1.00
  • cardanoCardano (ADA) $ 0.461926
  • solanaSolana (SOL) $ 42.82
  • dogecoinDogecoin (DOGE) $ 0.080859