Monetary Theory: National and International by Alvaro Cencini

By Alvaro Cencini

Financial idea offers another research to financial economics in keeping with the certain homes of financial institution cash. The publication examines alternate expense instability and places ahead another notion for eu financial Union.

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In our example, it provides both SB1 and SB2 with the central money necessary to carry out the clearing of their reciprocal acknowledgements of debt. At the end of the operation, central money is destroyed, and it is re-created every time the Central Bank is called upon to carry out a new intermediation. 1). As can be observed, we have used different indices to represent the currencies issued by the two secondary banks, as before Central Bank intervention they define two essentially heterogeneous objects.

The advance carried out by the Central Bank is obviously not a credit of last resort. The loan to the State does not arise out of monetary creation, but is financed by future income originating in the process of production. Acting as a financial intermediary between the public sector and income holders, the Central Bank carries out the function of transferring income from its initial owners to the State. If it took the place of the public as the final purchaser of treasury bonds, the Central Bank would not only stop acting as a mere intermediary, but would also finance its purchase through a monetary emission equivalent to downright seigniorage.

This means that income is effectively deposited with the bank, and that they own it only in the form of a deposit certificate. Consistent with what we have been claiming about the true nature of bank money, income comes into existence as a bank deposit. It is immediately evident, then, that the income deposited by IH is lent to F. The fact that the bank owes IH what F owes the bank is proof that the credit granted by the bank to the firm is backed by income holders. The payment of wages does not presuppose the existence of a positive income, for the very reason that it gives rise to a new deposit that allows for the financial covering of the whole operation.

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