In economics, money creation is the process by which the money supply of a country or a monetary region (such as the Eurozone) is changed. A central bank may introduce new money into the economy (termed 'expansionary monetary policy') by purchasing financial assets or lending money to financial institutions. Also, in a broader sense, it could be said that commercial banks introduce new money by multiplying base money created by the central bank through fractional reserve banking; this expands the amount of broad money (i.e. cash plus demand deposits) in the economy.
Central banks monitor the amount of money in the economy by measuring monetary aggregates such as M2. The effect of monetary policy on the money supply is indicated by comparing these measurements on various dates. For example, in the United States, money supply measured as M2 grew from $6407.3bn in January 2005, to $8318.9bn in January 2009.
Read more about Money Creation: Money Creation By The Central Bank, Money Creation Through The Fractional Reserve System, Alternative Theories
Famous quotes containing the words money and/or creation:
“Who keeps the tavern and serves up the drinks? The peasant. Who squanders and drinks up money belonging to the peasant commune, the school, the church? The peasant. Who would steal from his neighbor, commit arson, and falsely denounce another for a bottle of vodka? The peasant.”
—Anton Pavlovich Chekhov (1860–1904)
“As every season seems best to us in its turn, so the coming in of spring is like the creation of Cosmos out of Chaos and the realization of the Golden Age.”
—Henry David Thoreau (1817–1862)