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The Concept of Money and Its Creation - Essay Example

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This research is being carried out to explain the difference between narrow and broad money, the role of central and commercial banks in determining the size of a country’s money supply, and the effects and effectiveness of quantitative easing in the USA…
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The Concept of Money and Its Creation
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Download file to see previous pages This paper illustrates that for many centuries since the invention of money as an alternative medium of exchange from the old system that used barter trade, the medium has revolutionalized financial systems. Without the invention of money, one would wonder whether we would have the current financial institutions. The use of money eased the process of making payment and purchasing of items. The process of creating money is often a misunderstood phenomenon. Although many studies show that there are two main institutions tasked with the process of money creation, the process involved in creating money without the manual paper consideration is elusive. The two main institutions involved in the creation of money are the financial banks and the government.It is estimated that about 97% of the money created originates from the banks while only 3% comes from the governments. Using the United States as a case study in describing and assessing the effects and effectiveness of qualitative easing would provide a platform on how to stabilize economic growth. The narrow form of money is the most common medium of exchange. It is the form of money in circulation within any economy. It consists of coins and notes as well as sight deposit. The site deposits belong to accounts whose owners can make withdrawals without attracting penalties. The narrow form of money is corroborative indicators for the spending regimes. In fact, the form of money used in carrying out most of the day-to-day transactions of services and goods are the narrow form of money. Therefore, narrow money is the main form of exchange involving the monetary value. The zero maturity money is the sum of coins and notes on hold by the private sectors (the non-bakers). For instance, employers pay their employees either by cash or cheque. Besides, these companies used the same form of money to pay and offset their expenditures. Unlike the broad form of money, the narrow form of money gives a clear outlook on the assets employed as the medium of exchange. ...Download file to see next pagesRead More
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