Реферат: What Is Money Essay Research Paper What

gilts. The financing of

the public sector borrowing requirement (henceforth, the PSBR), may also affect

the supply of money. The total PSBR can only be met through the sale of debt,

foreign currency reserves, or by increasing the monetary base. Selling

government debt can be done in one of two ways, by selling the debt to the

central bank, or by selling it to the non-bank private sector. The former would

cause the government?s account with the central bank to be credited with an

amount equal to the value of the debt sold. Unfortunately, the spending of

these deposits would flow into the banking system, causing the monetary base to

rise, increasing the money supply. It has been said that this is the modern-day

version of printing money, which also carries this risk, and this is probably a

correct assumption. The latter

method causes the banks? operational deposits at the central bank to fall, thus

reducing the monetary base and the money supply. This only works if companies

in this sector, which includes insurance group, pension funds, and joint stock

companies, can be persuaded to purchase the debt, which depends on the

government?s willingness to accept increasing rates of interest. Its impact on

the monetary base is therefore less than what the model suggests, as interest

rates are now commonly used to reduce inflation. If commercial

banks purchase debt, their operational deposits will obviously be reduced, but

will soon recover once the government spends the money. Thus, the money supply

would be unaffected. If the foreign

exchange markets are intervened with by the government to adjust the exchange

rate, there may be an effect on the monetary base and the supply of money. When

the currency is falling, foreign currencies must be sold and the currency must

be bought to stabilise its price. The use of deposits of the national currency

to do this suggest that the operational deposits of the banking sector must be

reduced, causing the monetary base to fall, affecting the supply of money.

Conversely, by selling the national currency to reduce its rate, the monetary