One of the most effective ways Stimulating the economy of any state is to increase income through emissions. This procedure helps improve the economy of the state and allows you to replace worn banknotes with new ones. So, issuing money - what is it? This concept refers to the process of releasing additional new money into free circulation. The printing of banknotes and minting of coins is carried out by the state and is regulated at the legislative level.
In Russia, new money is issued almost regularly to replace worn out and damaged money. On average, their service life is about 5 years. Such a replacement does not entail an increase in the total amount of cash in circulation and is called a target issue. In general, it is customary to talk about emission in situations where the printing of new banknotes leads to an increase in the total money supply. The main task of this procedure is to develop working capital in order to increase production.
Release valuable papers contributes to the expansion of its own production and modernization of companies, or solving other problems that required additional funds. It must be taken into account that as a result of the issue of new shares coming to the market, and not being distributed among the company’s management, the number of original shareholders is reduced.
In Russia, the procedure for printing new money is carried out according to the following principles:
- Monopoly. Engage in the minting and printing of new banknotes, their withdrawal from circulation and redistribution cash flows Only the state represented by the National Bank has the right.
- Commitment. The only official means of payment, used throughout the state, is the ruble.
- Exchangeability - every subject who has documents proving his identity has the right to exchange any amount in rubles for the currency of another country.
- No peg - the ruble is not pegged to gold or any other precious metals.
In addition to the National Bank, the Treasury also has the right to print new banknotes. The difference between the powers of these two organizations is that the Central Bank issues credit material resources- bank notes, and the treasury - treasury notes.
Types of emissions
Emissions are divided into 2 main types:
- Cash - characterized by the receipt of paper money of different denominations in order to stimulate the state's economy. New money begins to be printed when salaries increase, prices for personal consumption goods rise, trade turnover increases, etc. To optimize cash emissions, it is necessary not only to correctly determine the forecasted amount, but also to correctly distribute it throughout the entire territory of the state. Emissions of this type are carried out in a decentralized manner. Since the need of banking institutions for cash depends on how much of it is required by legal and individuals, it is constantly changing. Cash flows from non-cash funds held on deposits and is a common component of the cash flow organized by banks in the course of the activities of the banking multiplier.
- Non-cash - the volume of money increases when banking institutions conduct active operations. The own volume of non-cash emission exceeds cash issue. Bank transfers are issued by banks that provide cash to clients who have funds in their accounts. In turn, a bank transfer is written off for the amount issued from personal client accounts.
Non-cash issue is primary because it is carried out first. And only after it the issued money goes to commercial banking structures such as budget allocations or borrowed proceeds from the National Bank. These funds are used to issue loans to the population and entrepreneurs.
In addition to the listed types of emissions, there are also such types as credit and budget. The first occurs when money generated as a result of credit transactions enters circulation. Budget money emission in the Russian Federation is carried out when special treasury notes, as well as government securities, are issued into circulation. This procedure carried out to fill the deficit in the state budget.
Some coins of the Russian Federation
Features and procedure for issuing in the Russian Federation
As noted above, according to the law, the Central Bank has a monopoly right to issue new cash. The decision on the release, as well as the withdrawal of a certain amount of money from circulation, is made by the Board of Directors. The Central Bank is responsible for the development of new banknotes, their design, durability and methods of protection against counterfeiting.
Coins are minted in the Moscow and St. Petersburg mints. To print paper cash, printing houses specially designed for this purpose are used, equipped with all the necessary equipment that can provide high level protection.
Mechanism of action
The process of printing and minting money is strictly controlled by the National Bank. It is within its competence that issues such as determining the required volume of emission and the uniform distribution of cash between the subjects of the state are included.
To determine the size of a possible issue, the Central Bank studies information about cash passing through bank cash desks and identifies regions that require additional infusion of funds. Since the process of delivering cash from central regions to remote ones causes certain difficulties, regions equip cash transfer centers to store reserves of banknotes. From the moment they are put into circulation, such money turns from non-cash into cash.
Also, RCCs are equipped with revolving cash registers intended for delivery by credit institutions carrying out Bank operations, all cash.
When cash receipts available in bank accounts exceed the cash limit in quantity, they are withdrawn from circulation and transferred to the reserve fund. If the need arises, such money is withdrawn from the reserve fund. In this case, this operation must be coordinated with the National Bank.
Consequences of excessive emissions
For banks, the easiest and fastest source of resources is additional large-scale issuance of new Money. However, as a result of insufficiently accurately calculated, excessive emissions, GDP does not increase, and business activity is not stimulated.
On the contrary, such release of money into circulation causes the opposite result when they begin to decline real income due to sharply increased inflation.
In the process of searching for additional monetary resources for credit institutions, it should be taken into account that ensuring an increase in the assets of banking institutions alone is not enough. It is necessary to create conditions that will allow these assets to be directed only to specific sectors, despite the presence of high lending risks and attractive speculative transactions.
To solve this problem, it is advisable to limit the withdrawal of money abroad through the purchase of foreign currency at the legislative level. It is also necessary to limit the possibilities of banks that use resources for the purpose of conducting financial speculative transactions on stock markets.
Thus we can conclude that the main factors that will optimize money emission, the following:
- Organization of a monetary and political system that allows for stable operations of the financial sector in the face of unstable exchange rate ruble
- Providing conditions that will allow stable functioning banking system.
- Providing conditions that allow creating an optimal structure of the money supply.
The listed factors make it possible to fulfill the main criterion for optimal emission, in which the needs of the economy will correspond to the money supply.
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To make it easier to study the material, we divide the article into topics:
Depending on the rate of price growth in the market, inflation is distinguished:
Creeping, with an annual rate of price growth of 3-4%. Such inflation is typical for developed countries, which view it as a stimulating factor;
galloping, with an average annual rate of price growth of 10-50% (sometimes up to 100%), which prevails in developing countries;
hyperinflation, with annual rates of price growth exceeding 100%, characteristic of countries in certain periods when they are experiencing a radical change in their economic structure.
Influenced by inflation economic situation the country is getting worse because:
Production volume decreases as price fluctuations and increases make production development prospects uncertain;
- there is a flow of capital from production to trade and intermediary operations, where capital turnover is faster and there are more profits, and it is also easier to evade taxes;
-speculation is expanding as a result of sharp and uneven price changes;
- are limited credit operations, since no one believes in debt;
- depreciate financial resources states.
The main form of stabilization monetary system is anti-inflationary policy with the help of money and government regulation inflationary process. Monetary reform is a complete or partial transformation of the monetary system, carried out with the aim of streamlining and strengthening money circulation. It is carried out by various methods (nullification, restoration, etc.), depending on the economic situation of the country, the degree of depreciation of money, state policy by adopting a one-time legislative act.
Nullification is carried out by canceling the old depreciated monetary currency and the introduction of a new one.
Restoration involves restoring the previous gold content of the currency and increasing the gold rate.
Devaluation - depreciation national currency in relation to foreigners.
Revaluation is an increase in the exchange rate of the national currency in relation to foreign ones.
Denomination is a reduction in the face value of the money supply in circulation by exchanging banknotes for new ones in the proportions of their depreciation, i.e. method of crossing out zeros.
Method shock therapy is a type of confiscation monetary reform. It includes the exchange of paper money at the rate, full or partial freezing bank deposits population and entrepreneurs, widespread use of free .
Issue of securities
State regulation of the inflation process means a set of government measures aimed at limiting price increases and stabilizing the monetary system through deflationary and income policies.Deflationary policy includes methods of limiting money demand by reducing government spending, increasing interest rate for credit, strengthening tax pressure, limiting the money supply. But it does not contribute to economic growth. Income policy involves control and complete freezing of prices and or the establishment of strict limits on their growth.
The purpose of issuing securities is to attract the required amount of funds in the shortest possible time. Emission can be primary or additional. The primary issue of securities is carried out upon the establishment of a joint stock company. An additional issue is carried out if the company needs to attract additional financial resources. Additional issue of shares can be carried out after approval general meeting the results of the previous issue, changes due to the actual sale of previously issued shares and the redemption of unrealized shares. In addition, with an additional issue of securities, shareholders are the owners of voting rights. Shares have a pre-emptive right to purchase them.
In accordance with Federal law RF “O” issue-grade security is any security, including uncertificated paper, which is simultaneously characterized by the following features:
Secures a set of property and non-property rights that are subject to certification, assignment and unconditional implementation in compliance with the forms and procedures established by law;
posted in releases;
has equal volume and terms of exercising rights within one issue, regardless of the time of acquisition of the security.
In accordance with this law, equity securities in Russia are shares and bonds.
A share is an issue-grade security that secures the rights of its owner (shareholder) to receive part of the profit of the joint-stock company in the form of participation in management joint stock company and for part of the property remaining after its liquidation. An entrepreneurial company can issue simple and preference shares.
A bond is an issue-grade security that secures the right of its holder to receive from the issuer of the bond within the period specified by it and the percentage of this value fixed in it or other property equivalent. The issuing company may issue bonds with a single maturity or bonds with a maturity in series within certain periods.
Issue-grade securities may be issued in one of the following forms:
Registered securities in the documentary form of issue (registered documentary securities);
registered securities in uncertificated form of issue (registered bearer securities).
When a business firm makes a decision to issue securities, the following main activities are first carried out:
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Topic 2. Issue and release of money into economic circulation
Emission non-cash money
Cash emission.
Money supply and its elements.
Concept, essence and types of money issue
The concepts of “issue of money” and “issue of money” are unequal concepts.
Issue of money turnover happens all the time. At the same time, the amount of money in circulation does not increase.
Under emission of money is understood such release of money into circulation that will lead to general increase money supply in circulation.
l the main objective emissions –– meeting the additional need of the economy for funds to expand production and form working capital.
lEmission can be of two types: budget (treasury), credit (banking).
lTo finance the deficit state budget The treasury issues treasury notes –– budget issue . It is determined not by the needs of real economic turnover, but by the size of the budget deficit.
lBut a significant part of the money is created by commercial banks as a result of credit operations.
lThis process is called bank issue and occurs through an increase in cash balances in bank accounts, the issuance of banknotes and the creation of electronic money.
There are two forms of credit emission: deposit (non-cash) and cash (banknote).
lAccording to Banking Code RB – The National Bank has a monopoly right to issue. The issue of money is carried out by the National Bank through the release of non-cash and cash money into circulation. Cash is issued into circulation in the form of banknotes and coins.
Money issuance is carried out by the National Bank through short-term (up to one year) refinancing of banks in order to
maintaining the liquidity of the banking system of the Republic of Belarus and the stability of monetary circulation, the purchase by the National Bank of freely circulating money market government securities and carrying out operations in the domestic and foreign money markets aimed at increasing gold and foreign exchange reserves. The issue of money for long-term (over one year) refinancing of banks is prohibited.
2. Issue of non-cash money
l Non-cash money issue –– this is an increase in the volume of funds in bank accounts in the process of banks conducting active operations (operations related to the placement of their credit resources). Emissions in non-cash form always precedes cash.
National Bank issues non-cash money when it buys foreign currency, precious metals and stones, as well as government securities freely tradable on the money market or in the short-term (up to one year) refinancing of banks or the banking system as a whole and the stability of monetary circulation, when providing loans to the government of the Republic of Belarus , local governments.
Money issued by the National Bank is credited to the appropriate accounts: correspondent accounts of banks, the Main State Treasury of the Ministry of Finance of the Republic of Belarus, its territorial bodies or local budgets. In the future, these funds either remain in circulation and are used for payments as non-cash payments, or are transformed into cash.
After the National Bank has issued a certain amount of money, banks are included in the emission process. Their participation is due to the existence of the multiplier effect (banking, credit, monetary, deposit multiplier). Bank multiplier is a mechanism for increasing the money supply in deposit accounts compared to the initial amount of money in the process of movement of non-cash funds through the system of commercial banks.
3. Cash emission
l The issue of cash represents their release into circulation, which increases the amount of cash in circulation.
l Technically emission –– this is the write-off of funds from the reserve funds of the National Bank to its working cash desks.
In market conditions, the Central Bank predicts the size of the expected issue.
In particular, the volume of cash circulation, the direction of cash flows, the distribution of the money supply in the country, and its aggregates are determined. The National Bank, as an issuing center, is entrusted with the task of organizing cash circulation, including the production, issue, storage, withdrawal and destruction of cash banknotes.
The production of banknotes and their issuance includes the following steps:
l determination of the level of need for new banknotes;
lprinting banknotes and minting coins, establishing means of protecting banknotes from counterfeiting;
lorganization of storage of non-issued banknotes and coins;
ldirect release of money into circulation.
lTo determine the need for cash, banks make forecasts of the expected receipts of cash in their cash desks, as well as possible extraditions money from the cash registers. The forecast of cash turnover is made based on the analysis of data from business entities served, individual entrepreneurs, population.
lThe consolidated forecast is compiled by the Central Bank (NB), using data from the forecast of the main directions of the country’s socio-economic development, and additional data is involved (statistical, forecast of retail turnover, volume of paid services of the population, data from communications and insurance authorities).
The National Bank ensures the publication of a description of cash in official means mass media, which gives the public the opportunity to distinguish genuine signs from counterfeits.
4. Money supply and its elements
lThe most important object of regulation by central bank is the amount of money or money supply in circulation.
Broad money supply is the totality of funds intended for payment for goods, works and services, as well as for the purpose of accumulation by non-bank financial institutions, commercial and non-profit organizations, individual entrepreneurs, individuals – residents of the Republic of Belarus in Belarusian rubles and foreign currency.
According to world standards, the expansion of money supply aggregates occurs as the degree of liquidity decreases.
Money supply aggregates M0, M1, M2, M2* are calculated in Belarusian rubles.
Unit M3 additionally includes transferable and time deposits in foreign currency, funds in securities (except shares) in foreign currency, deposits in precious metals.
Unit M0 (cash)–– the most liquid part of the money supply. Includes banknotes and coins in circulation in the hands of individuals and in the cash registers of legal entities.
Unit M1–– aggregate M0 plus transferable deposits (balances of legal entities and individuals – residents of the Republic of Belarus on current, deposit and other demand accounts in Belarusian rubles).
Unit M2 –– (money supply in national definition) – M1 unit plus other deposits (time deposits), opening in banks to legal entities and individuals – residents of the Republic of Belarus in Belarusian rubles.
Aggregate M2* (ruble money supply)–– aggregate M2 plus funds in securities (except for shares) of legal entities and individuals – residents of the Republic of Belarus in Belarusian rubles.
Aggregate M3 (broad money supply)–– aggregate M2* plus transferable and time deposits in foreign currency, funds in securities (except for shares) in foreign currency and deposits in precious metals of legal entities and individuals – residents of the Republic of Belarus.
Cash foreign currency is not included in the broad money supply due to the limited use of it as a means of circulation and payment and due to the impossibility of accurately assessing its volume.
The main initial guidelines for determining the aggregates of the money supply are the data from the consolidated balance sheet of the National Bank and the consolidated balance sheet of banks of the Republic of Belarus
There must always be a certain amount of money in circulation, which depends on the volume of GDP, the rate economic growth, degree of development of the banking system, financial markets, structure of money turnover, velocity of money circulation, money credit policy states. Additionally, the size and structure should be taken into account cash income population, the relationship between supply and demand for money.
For the development of commodity production and the growth of commodity exchange, it is necessary that the amount of money supply correspond to this process. When this balance is disrupted, the state begins to issue new money. How many and what kind of banknotes are needed is decided by experts, since excess money supply can also lead to negative phenomena in the economy.
Money emission - what is it? Goals and essence of the procedure
The issue of new banknotes in the state is carried out almost constantly, because worn and damaged banknotes have to be replaced (their service life is up to 5 years). As a result of such a replacement, the total amount of money in circulation does not increase. If, with the release of new coins and banknotes, the money supply begins to grow, then we can talk about emission. Its main goal is the formation of working capital to expand production.
The issue of money in Russia is based on several principles:
- Monopoly . Only the State, represented by the Central Bank, has the right to issue new banknotes, withdraw funds from circulation and redistribute cash flows.
- Obligations . Ruble on the territory Russian Federation is the only official means of payment for settlements.
- Exchangeability . Russian ruble subject to exchange in any amounts upon presentation by the subject of identification documents.
- Lack of binding . The ratio of the ruble to gold and other precious metals is not established.
As a result of money emission, the increase in the monetary base is exchanged for part of the national income, due to which the influx of funds into commercial banks increases and enterprises are credited.
Main types of money issue and organization conditions
Experts distinguish 2 types of money issue:
- Spot . This is when new banknotes and coins of different denominations come into circulation to stimulate the country's economy. The printing press can start when raised wages, rising prices for consumer goods, growth in trade turnover and so on.
- Cashless . It is characterized by an increase in the volume of funds in bank accounts when financial and credit structures carry out active operations. In terms of volume, this type of emission prevails over cash emission.
At first, non-cash emission is carried out, so it is primary. Only then are additionally issued funds transferred to the accounts of commercial banks in the form of budget allocations or loan proceeds from the Central Bank. These funds are used to issue loans to entrepreneurs and the population.
When issuing cash, additionally issued banknotes are transferred to banks, and then similar amounts are debited from their correspondent accounts by bank transfer.
During the circulation process, money of one type can be easily converted into another, since they are interconnected. For example, cash that clients deposit at the bank's cash desk is credited to their accounts and transferred to the non-cash category. If part of the amount is somehow withdrawn from the account, then the non-cash money again becomes cash.
Who issues money in Russia?
In accordance with legislative framework, the Central Bank has a monopoly on issuing money in Russia. The Board of Directors makes responsible decisions on the issue of new money supply or the withdrawal of part of the funds from circulation. The Central Bank pays special attention to the development of new banknotes, their design, durability and ways to protect money from counterfeiting.
Coins are minted in the mints of Moscow and St. Petersburg. Paper money is printed in specialized printing houses, where banknotes are provided with an increased level of protection.
The process of making money is strictly controlled by the Central Bank . It determines the required volume of emission and distributes cash evenly among the constituent entities of the Russian Federation.
How money is issued in the Russian Federation: procedure and mechanism of the procedure
To determine the size of the proposed issue, the Central Bank collects data on the passage of cash through the cash desks of commercial banks and identifies regions where there is a need for additional infusion of funds. Since it is very difficult to transport cash from the Center to remote areas, there are cash settlement centers (CSCs) in the regions, where they are stored in reserve banknotes. In the generally accepted understanding, this is not money yet. They will have such a function only after they are put into circulation.
The RCC also has circulating cash desks, where commercial banks deposit all cash, and then it is distributed among them based on requests.
If cash receipts in bank accounts begin to exceed set limit, then the money is withdrawn from circulation and transferred to the reserve fund. When the need for them arises again, the reverse process occurs with the permission of the Central Bank.
What will the excess emission of money lead to: possible problems in the country’s economy
An increase in cash in circulation, it would seem, should stimulate consumer demand and strengthen economic potential. But in fact, an excess money supply contributes to rising prices for goods and services without affecting the development of production. As a result of excessive money emission . And as a result, there is a redistribution of income. In a person with fixed wages Purchasing power decreases, while entrepreneurs with popular goods experience unreasonable income. The country's balance of payments is disrupted.
The only people who benefit from inflationary processes are financial structures, exchanges and exporters. Ordinary citizens, as always, lose, losing not only from rising prices, but also from the abolition of wage indexation and so on. Prices are also rising for imported products, since the state cannot regulate the foreign exchange and food markets. Credits become unavailable.
Thus, we can conclude that the positive effect of money emission is possible only in conditions of stable production growth.
Cash turnover consists of the turnover of cash and non-cash money.
Cash– banknotes and coins. Non-cash money– funds in accounts with the CB and the Central Bank (demand and time deposits). In Europe, they are called giro money (from the Italian giro - circle, turnover), which means their circulation within the banking system.
Serving economic turnover, money is constantly released into circulation and withdrawn from circulation.
It is necessary to distinguish between the concepts of “issue of money” and “issue of money” that are similar in content, but not identical.
Issue of money into circulation is a stable, constant process of transfer by banks to legal entities and individuals of cash and non-cash money as a result of credit transactions. It is not always accompanied by an increase in the money supply, since there is a reverse process - withdrawal of money (payment of court, deposit of cash at the bank). In addition, an increase in money in circulation does not occur when cash is deposited with a commercial bank - only a change in the structure of the money supply occurs.
To assess the state of the national monetary system, it is important to know the real change in the money supply, the indicator of which is emission- is the issue of money, leading to a general increase in the money supply in circulation.
Highlight:
§ issue of non-cash money;
§ issue of cash (issue of money in circulation)
Issue of money into circulation carried out:
a) Central Bank:
When purchasing assets. when he pays with his own money (i.e., issues obligations); assets – securities, currency.
When providing loans to commercial banks.
Thus, money, i.e., the Central Bank’s obligations to partners under these transactions, is released into circulation in the non-banking sector.
The most widespread are the Central Bank's credit operations, which characterizes the Central Bank's money as credit money, and the national monetary system as a system of credit money.
Other operations of the Central Bank play a major role in the release of money into circulation:
§ V developed countries– this is the purchase of government securities or the early purchase (rediscount) of bills of exchange of leading national companies;
§ in developing countries (and in the Russian Federation) - purchasing dollars and euros from exporters and commercial banks.
Seizure The central bank withdraws money from circulation when it sells assets to business entities or returns previously issued loans to it. At the same time, the money returns to the Central Bank and its debt on transactions to partners is reduced.
b) Commercial banks:
§ when purchasing assets from clients (securities, currency);
§ when issuing loans
The bank uses the balance of its operating cash for this, or exchanges funds from its deposit with the Central Bank for cash - banknotes. Thus, there is a change in the cash money supply due to a reduction in Central Bank reserves.
Emission is carried out :
a) Central Bank– cash and non-cash.
This process must be carried out carefully, since the stability of the national currency, its purchasing power, price stability in the economy and balance in the money and credit market.
b) Two-tier banking system– Central Bank and Commercial Bank – through the banking animation mechanism – non-cash only.
It is believed that primary is the emission non-cash money, since before cash appears in circulation, it must be reflected in the form of entries in the deposit accounts of the commercial bank.
home purpose of the issue non-cash money – meeting the additional needs of business entities in working capital. This need is satisfied through loans. But banks provide loans only within the limits of their available resources - equity and deposits.
An increase in production, prices for resources and goods causes an additional need for money by the economy and population. This causes an objective need for a mechanism for issuing non-cash money.
Issue of non-cash money.
Given the existence of a two-tier banking system (CB and CB), the emission mechanism operates on the basis of the banking (credit, deposit) multiplier.
Bank multiplier- this is the process of increasing (animation, from the Latin multiplicatio - multiplication) money in the deposit accounts of commercial banks during the period of their movement from one commercial bank to another.
The difference in the terminology of “banking”, “credit”, “deposit” multiplier comes down to differences in the positions of their consideration (Lavrushin):
§ Bank multiplier characterizes the animation process from the perspective of the subjects of animation (the system of commercial banks);
§ Credit multiplier characterizes the basis of the animation process - it is carried out only as a result of lending to the economy.
§ Deposit multiplier characterizes the object of the animation - money in the deposit accounts of commercial banks.
If deposits are the only form of money, then the bank multiplier can be called the money multiplier.
The bank multiplier mechanism is directly related to bank reserves.
All commercial banks that accept deposits from business entities and the public are required to form and place in their accounts with the Central Bank established by law sums of money – required reserves, which are security for the requirements of depositors. Their size is reserve rate(reserve ratio) – equal to the ratio of the amount of reserves to the amount of deposits, expressed in %. Required reserves are one of the instruments of monetary policy of the Central Bank.
CB resources remaining after reserving funds in the Central Bank are called free (excess) reserve.
Free reserve is the totality of CB resources that are this moment time can be used for active operations (Lavrushin). This concept came to the Russian Federation from Western economic literature. But it is not entirely accurate. In fact, the free reserves of commercial banks are theirs. liquid assets. From the definition it follows that this concept refers to resources, i.e., the liabilities of the design bureau.
The amount of free reserve of an individual bank is equal to:
Cp = K + PR + CC + MBK – OCR – JSC, Where
K – capital of a commercial bank;
PR – attracted resources (funds in deposit accounts);
CC – centralized loan provided commercial bank central bank;
ICB – interbank loan;
OCR – contributions to the centralized reserve at the disposal of the Central Bank;
JSC - resources invested in the active operations of a commercial bank.
Let us consider the mechanism of the bank multiplier using a conditional example, assuming the following assumptions:
§ norm required reserves R =20%
§ at the initial moment, commercial banks do not have free reserves;
§ banks strive to invest all free reserves in active operations (only lending as an example);
§ Each KB has only two clients.
2 3 5 6 8 9 11 12 14
 |  |  |  | ||||||||
KB clients
Rice. 1. Banking multiplier diagram
In practice, there is a constant process of formation and withdrawal of deposits in commercial banks.
Accordingly, there is an increase and decrease in bank loans, and a counter movement of free reserves in the banking system. At the same time, required reserves are formed. Considering the continuity and interconnection of these processes, they can be characterized by one term - credit - money turnover. In the figure, it is presented as the movement of deposits and OR, as well as the movement of SR - their counter fragmentation and unification within the banking system.
1. The Central Bank issues a centralized loan to KB1 (KB1 does not have its own for lending) in the amount of 1000 and KB1 has a free reserve of 1000;
2. KB1 credits Client 1 within the free reserve balance (FR) – 1000;
3. Client 1 from his current account (where the 1000 credit was credited) pays the account of Client 2, which is opened in KB2. In KB2, as a result of this operation, CP = 1000 appears;
4. KB2 is obliged to make contributions to the OCR (mandatory centralized reserve in the Central Bank) in the amount of the required reserve norm = 20%, i.e. 200. Thus, KB2 has free funds 1000 – 200 = 800;
5. KB2, pursuing the goal of extracting maximum profit, invests this money: credits Client 3 for 800;
6. Client 3 pays Client 4, whose account is opened with KB3. Thus, KB3 has CP = 800 (i.e., funds transferred to the account of Client 4);
7. from these funds (800), KB3 makes contributions to the ORC in the amount of 20% (i.e. 160). Thus, in KB2 the reserve disappears, and in KB3 it appears;
8. KB3 issues the remaining part (800 – 160) = 640 on credit to Client 5, who pays Client 6 by transferring money to his account opened with KB4. Thus, in KB3 the reserve disappears, and in KB4 it appears, etc.
The money in the accounts of all even-numbered clients (2, 4, 6, 8...) remains untouched - these are their permanent deposits. So it's obvious that total amount money in the current accounts of these clients will ultimately amount to a value many times greater than the original 1000 (Client 2 – 1000, Client 4 – 800, Client 6 – 640, Client 8 – 512, etc.)
The size of the exchange of funds in customer accounts depends on the required reserve ratio.
The animation process is presented here in a formal form. The deposit initially created in KB2, through its subsequent transformation into a loan, creates a new deposit in the same bank, the size of which is less than the original one by the amount of the required reserve. Then the same thing happens in other banks.
The final table data are the sums of four infinitely decreasing processions with the same denominator (1-R).
To calculate the sums, the formula for the sum of an infinitely decreasing geometric sequence is used
S=α1/(1-q), Where
α1 - 1st member of the sequence;
q is the denominator of the sequence.
Table 1
Multiplicative expansion of the credit and deposit base of the banking system
| Bank | Received reserves and new deposits | OR(R=20%) | Wed | New loan |
| Central Bank Bank 1 | ||||
| Bank 2 | 1000·R=200 | 1000(1-R)=800 | 1000(1-R)=800 | |
| Bank 3 | 1000·R(1-R)=160 | 1000(1-R)²=640 | 640 | |
| Bank 4 | 1000·R(1-R)²=128 | 1000(1-R)³=512 | 512 | |
| Bank 5 | 1000·R(1-R)³=102.4 | 1000(1-R) 4=409.6 | 409,6 |
Loss of excess reserves occurs only in individual commercial banks; the banking system as a whole does not lose excess reserves.
Designations:
SR – free (excess) reserves;
Or – required reserves.
Fig 2. Credit and deposit turnover in the banking system.
When they move between banks, there is only a consistent decrease in free reserves by the amount of required reserves - their fragmentation. This process can continue until the amount of the initially received reserve is completely exhausted, i.e., the natural economic limits are exhausted - the amount of money that can no longer be used for lending or acquiring assets. In our example, this is an infinitesimal value.
In practice, a situation is possible when banks will not be interested in expanding lending, and business entities will reduce their need for loans. Then the last free reserve will simply “freeze” in the account of one of the commercial banks until the economic situation changes.
Thus, we can define: cartoonist– this is the maximum amount of new money (deposits, loans) that can be created by one monetary unit initial deposit (loan).
Mathematically, the multiplier (M) is the number by which the value of the deposit (loan) is multiplied to obtain its total possible increase as a result of the multiplicative expansion of deposits (loans).
M =1/R, Where
R – mandatory reservation rate. In our example, R = 20% = > M = 5, i.e. the money in deposit accounts can increase 5 times (i.e. 1000 x 5 = 5000).
Both expansion and contraction of the money supply can be multiplicative. Special attention is given to increase, since the stability of the monetary system and the level of inflation largely depend on this.
The reverse process of multiplicative reduction occurs when deposits are withdrawn from commercial banks. If banks used all free reserves for lending or acquiring assets, then withdrawal of a deposit of 1000 (see diagram 1) will lead to the need to sell assets or reduce loan portfolio. This will lead to the withdrawal of excess reserves of 800 from other banks, etc. This will ultimately lead to a multiplicative reduction of deposits in the banking system by 5000. This is the main reason why banks today strive to attract maximum resources, including from the population.
Thus, the management of the banking multiplier mechanism and the issue of non-cash money is carried out exclusively by the Central Bank. The emission is carried out system banks. The Central Bank, managing this mechanism, narrows or expands the issuing capabilities of the bank. The lower the amount of required reserves, the more money can be created by the banking system.
Managing the issue of non-cash money is one of the most important functions of the Central Bank - the function monetary regulation.
Issue of cash.
Issue of cash- this is their release into circulation, which increases the total amount of cash in circulation.
The monopoly on the issue of cash belongs to the central state banking authority: in the Russian Federation - the Central Bank of the Russian Federation, in the USA - the Federal Reserve System.
Forecasting the size of banknote production and their distribution among the regions of the Russian Federation is the most important function of the Central Bank of the Russian Federation. For this central office The Central Bank and its territorial main departments (GU) are carrying out analytical work to summarize the results received from credit institutions cash flow forecasts and identifying the main trends in the development of monetary circulation.
The initial information is cash orders(plans) drawn up by clients of credit institutions and operational information on the dynamics of cash receipts at bank cash desks and their issuance.
Incoming part of the forecast Cash turnover is calculated based on the forecast of cash receipts from enterprises and organizations on their own or by collectors.
Expense part of the forecast cash turnover is predicted based on the forecast of bank clients’ expenses for paying salaries, travel expenses and other current expenses.
The amount of future release (withdrawal) of cash into circulation depends on the ratio of income and expenditure parts.
The issue of cash is carried out by the Central Bank of the Russian Federation together with its State Administration and is associated with:
§ With cash service economic entities and population of each region;
§ the need to increase the cash reserves of credit institutions.
For this purpose, the Central Bank of the Russian Federation, under its main departments (GU), creates settlement and cash centers (RCCs). In the RCC, working cash registers are opened and reserve funds are formed.
Reserve funds represent stocks of banknotes (banknotes and coins) intended for release into circulation when an additional need for cash arises. These banknotes are not considered money in circulation (not included in the calculation of the money supply), because . don't make any movements; are a reserve. They are being created by order of the Central Bank of the Russian Federation based:
§ the size of the cash register;
§ volume cash circulation;
§ storage conditions;
§ storage capacity.
Reserve funds are created for:
§ meeting the needs of business entities and the population for cash;
§ updating the money supply by removing damaged banknotes and coins;
§ maintaining the optimal banknote composition of the money supply for circulation needs;
§ reducing the costs of transporting and storing money, eliminating counter transportation of money between regions and the central storage.
Revolving cash register necessary for accepting cash from commercial banks with their subsequent crediting to permanent deposits in the RCC of the Central Bank of the Russian Federation, as well as issuing cash to them. Money in the cash register are considered money in circulation.
If the amount of cash received into the working cash register of the RCC > the amount issued from it, then the money is transferred from the working cash register to the reserve fund, i.e. the money is withdrawn from circulation. If on the contrary, then the RCC transfers the required amount from reserve fund to the cash register. For this purpose, the RCC receives special permission from the Central Bank.
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Fig 3. Scheme of cash flow between banks, legal entities and individuals.
RCCs are required to issue cash to commercial banks free of charge within the limits of their free reserves. The money goes to the operational cash desks of commercial banks, from where it is issued to the clients of these banks, that is, it goes either to the cash desks of enterprises or directly to the population. In this case, money is debited from clients' accounts upon demand. (See Figure 3.)
Thus, cash is transformed from non-cash money held in deposit accounts and represents an integral part of the money supply created by the commercial bank as a result of the bank multiplier mechanism.
The release into circulation by one RCC does not mean the implementation of a cash emission, since this issue may be accompanied by the withdrawal of the same amount by other RCCs.
Receiving information from all RCCs in the country, the Central Bank of the Russian Federation draws up an emission balance, tracking the dynamics of the issue (withdrawal) of money (daily).
Thus, this procedure for organizing money circulation is an important tool for implementing monetary policy Central Bank of the Russian Federation, aimed at protecting and ensuring the stability of the ruble.