Reforms in China’s Monetary Policy Reforms in China’s Monetary
(c) Theory on Money Creation and Banking Operation
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| (c) Theory on Money Creation and Banking Operation.
In the conventional money theory, the theory of creation of deposit money under the credit monetary system 3 is the core concept. It can be explained in the following process: under the assumption that clients will not withdraw any cash, a bank takes 100 yuan “original deposit,” of which 20 yuan will be “set aside as required reserves,” and the remaining 80 yuan will be used to make loans to another client. This client will then deposit the 80 yuan in another bank, which will set aside 16 yuan as and lend out the remaining 64 yuan. This cycle will repeat itself until the initial amount of 100 yuan “original deposit” all becomes reserves. Eventually the bank will have 500 yuan deposits as liabilities, 400 yuan loan, and 100 yuan reserves as assets. According to the conventional money theory, “the initial deposits are usually referred to as original deposits, and the deposits coming from the original ones are known as derived deposits” (Huang, 1998). Money creation is the result of numerous activities by many banks, which is also the process of banking operation. In his “Economics”, Stiglitz describes “how banks create money”: The money multiplier works just as well when more than one bank is involved. Assume our billionaire deposits $1 billion in currency with BankNational, which then, after setting aside 10 percent to meet its reserve requirement, lends $900 million to Desktop Publishing. Desktop Publishing then orders equipment from ComputerAmerica, which banks with BankUSA. When Desktop Publishing writes a check for $900 mil- lion to ComputerAmerica, $900 million is transferred from BankNational to BankUSA. Once that $900 million has been transferred, BankUSA will find that it can lend more than it could previously. Out of the $900 million increase in deposits, it must set aside 10 percent, or $90 million, to satisfy the reserve requirement, but it can then lend out the rest, or 0.9 ⫻ $900 = $810 million. Suppose it lends the $810 million to the NewTelephone Company, which uses the money to buy a machine from Equipment Manufacturing. If Equipment Manufacturing promptly deposits its pay- ment into its bank account at BankIllinois, then BankIllinois will find that its deposits have increased by $810 million; it therefore can lend 0.9 ⫻ $810 = $729 million after meeting the 10 percent reserve require- ment. In this example, total deposits have increased by $1 billion plus $900 million plus $810 million plus $729 million, or $3.439 billion. But this is not the end of the process. As each bank receives a deposit, it will Monetary Theory ● 21 increase its lending. The process will continue until the new equilibrium is identical to the one described earlier in the superbank example, with a $10 billion increase in deposits. The banking system as a whole will have expanded the money supply by a multiple of the initial deposit, equal to 1/(reserve requirement). When there are many banks, individual banks may not even be aware of the role they play in this process of expanding the money supply. All they see is that their deposits have increased and therefore they are able to make more loans. The deduction of the theory is based on concepts such as deposits, loans, and required reserves. This deduction is composed of many mistakes. The conventional money theory created this theory to address the logical contra- diction between the commodity money era idea of “using funds to underwrite loans” and the recognition that the deposits are generated from bank credit. However, neither the commodity monetary system nor the credit monetary system has such “deposits derivation mechanism” in theory or in practice. The key to find out the problem lies in the first lending activity of the bank. The money creation process under the conventional money theory goes as follows: 1. A client deposits 100 yuan in Bank A, and Bank A sets aside 20 percent of the deposits as required reserves. 2. Bank A makes a 80 yuan loan to a client. The client withdraws the cash and purchases the goods of a seller who has opened an account at Bank B. Deposits are therefore transferred to Bank B (thereafter going through numerous similar rounds). tải về 1.53 Mb. Chia sẻ với bạn bè của bạn:
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