cash that is outside of banks and reserves of commercial banks, which is stored in the vaults of the Central, called the monetary base.
Cash - is a direct part of the money supply and bank reserves affect the ability of each of the banks create new deposits, thereby increasing the money supply.CBA is able to control the money supply mainly through the influence of the monetary base.Its change is having on the money supply multiplier effect.
Consequently, the process of change in the money supply can be divided into two stages:
- Initially, the monetary base is modified by making changes in the Central Bank obligations to the system of banks and the population (impact on the size of reserves and cash).
- Further changes in the money supply through the multiplier process among commercial banks.And the monetary base and the multiplier amenable to monetary policy instruments.
for modern monetary systems are characterized by effective implementation of the functions assigned to them only if the support of optimal quantity of money in circulation (according to the needs of the economy).And this level defines and regulates the release of the money in circulation Central Bank.
To do this, use the indicators that will express the money supply:
- money supply - that's all the money of the national economy, which are in circulation, both in cash and non-cash.In its scope are influenced by many factors: the volume of GDP and the rate of economic growth, the structure of the financial and credit and banking system and their level of development, the ratio of cash and non-cash circulation of money, monetary, fiscal and monetary policy of the country, the rate at which addressmoney, national balance of payments and the like.
- monetary base - a measure of monetary policy, which is used for calculating the money supply.In the past, there was the so-called "gold standard" - is to ensure all the money the country's gold.Then, the monetary base was equal to the volume of gold reserves.Now
State ceased to provide their currencies in gold, introduced the concept of fiat gold credit.Also changed the very meaning of the concept of "monetary base".As already mentioned above, the tools that are included in this stock can actually be used by commercial banks as a source of extra money for the treatment.For this reason, the western economic literature refers to funds that make up the monetary base CB, - "high-powered money."
What is the role the money supply and the monetary base in the organization of monetary circulation of the country?
convenient to consider this question, modeled on the balance of the Central Bank.Reserves of commercial banks and bank notes stored in the Central Bank, the monetary base up and are, in fact, the monetary liabilities of the Central Bank, so indicated in its liabilities.At the same time they are the resource of the Central Bank.
in assets reflects the distribution of the resources of the Central Bank.Specificity of its asset transactions is such that it acts as a lender only for commercial banks and the government of the state.When the Central Bank issues a loan to these borrowers, he essentially loans to the economy.
actual volume of cash in circulation in developed countries is quite small and only a few percent relative to the total money supply, but the monetary base notes are a large proportion and, therefore, are in many countries the main source of resources of the Central Bank.
Reserve Bank is divided into surplus and binding.Required reserves of commercial banks hold at the Central Bank at its request, and the excess on your own.But those and others are also an important component of the monetary base.
