Take you to the base currency.

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Benchmark currency

Debt certificate issued by the central bank

Base currency, also known as monetary base, strong currency and initial currency, is also known as high-energy currency because of its ability to double or shrink the total money supply. It is a debt certificate issued by the central bank, which is manifested in the deposit reserve of commercial banks (R) and the currency held by the public (C). In the report of the International Monetary Fund, the base currency is called the reserve currency, including the central bank's currency issuance (M) and the bank debt (deposit reserve, R) guaranteed by the central bank. The base currency is the basis for the entire commercial banking system to create deposit currency, and it is the source of the multiple expansion of deposits in the entire commercial banking system.

Chinese name

Benchmark currency

Foreign name

monetary base

issuer

central bank

include

broad money

express

Deposit reserve, currency held by the public

computing formula

Total reserve+currency

Another name

Monetary base, strong currency, initial currency

introduce

In the past, economists didn't know the essence of money and couldn't give an accurate definition of money, so people usually confused money with deposit money.

For example, the People's Bank of China, the International Monetary Fund and academic circles generally attribute the monetary statistics such as M 1 M2 to the "supply" of the central bank. In fact, the non-issue part of M 1, M2, is due to the circulation of money in the market, and the statistical data reflected in the banking system are endogenous "apparent money" in the market, not "supplied" by the central bank.

According to the definition of the International Monetary Fund's Handbook of Monetary and Financial Statistics (2002 edition), the base currency includes all kinds of liabilities provided by the central bank to support the expansion of broad money and credit, mainly referring to the currency held by banks (cash on hand) and the currency outside banks (cash in circulation), as well as the deposits of banks and non-banks in the monetary authorities. In the report of the International Monetary Fund, the base currency is called the reserve currency.

This concept wrongly summarizes two different forms of money (static money quantity and repeated statistics after circulation), which has caused great trouble to the whole money banking industry, such as the circulation speed of money, endogenous and exogenous, neutral and non-neutral and other related research.

Based on this erroneous concept, scholars mistakenly believe that "the product of the base money and the money multiplier is the theoretical money supply". In fact, the broad money quantity M2 is equal to the product of the money circulation quantity M and the deposit redemption rate. Because money is in circulation, people usually intercept some very little cash, and most of it is converted into deposits. Banks only need to deal with the cashing of depositors, and the state usually prohibits banks from operating in negative assets. On this basis, they impose a "deposit reserve" on deposits to limit the circulation speed of money and prevent the banking system from collapsing due to extrusion. So it is called "reserve".

trait

The base currency is the basis for the entire commercial banking system to create deposit currency, and it is the source of the multiple expansion of deposits in the entire commercial banking system. From a qualitative point of view, the base currency has several basic characteristics:

First, the monetary liabilities of the central bank, rather than the assets or non-monetary liabilities of the central bank, are supplied by the central bank through its own asset business; (The establishment of a modern central bank does not depend on financial capital injection and asset guarantee, and neither the currency issuer nor the government provides asset guarantee for the currency, so the currency issuance actually does not have the characteristics of a letter of credit, so the operation of the central bank is actually equal to the debt operation, and the debt scale of the central bank actually depends on the scale required to perform the circulation function. The asset business of the central bank is actually a derivative of the central bank's debt business. )

Second, through the influence of variables directly controlled and regulated by the central bank, the purpose of regulating supply is achieved;

Third, the basis for supporting the liabilities of commercial banks. Commercial banks cannot create credit without holding the base currency. Modern commercial banks can create a lot of monetary credit by issuing contingent credit derivatives without relying on the base currency; In the process of financial circulation, by issuing financial innovation tools, the credit creation ability of commercial banks is actually not restricted by monetary policy and money supply, and the final debt scale of commercial banks depends on the net asset scale and risk management ability of commercial banks)

Fourth, under the reserve system, the base currency can be used by the whole banking system and can generate several times its own amount. From the source, the base money is supplied by the central bank through its asset business.

computing formula

From the purpose, the base currency is the cash in circulation and the reserve of commercial banks. In terms of quantity, the base currency consists of statutory reserve, excess reserve, cash on hand and cash held by the public outside the banking system. The formula is:

Base currency = statutory reserve+excess reserve+cash on hand in the banking system+cash held by the public.