Money Supply from central bank.?

Question

How central bank create money, other than printing new moeny.
Is there any other way for central bank to increase money supply?

Central bank purchase goverment bonds from people, Is this correct? Or its central bank purchase some other thing from people to increase money supply...

Can some1 list down how central bank increse moeny supply,

and
other than central bank is there any other ways to increase money supply?

TQ

Answer 1

The Federal Reserve Bank is the central bank of the US. The Bank of England is the central bank for the UK.

What modern central banks do is something quite nearly magical, in that, via 'credit', they increase the money supply. Money is no longer backed by bullion, but rather, by wealth in general, which the central bank monetizes, ultimately by printing more money.

Its the barter system. The more there is to barter, the more the central bank monetizes it. Money is the medium of exchange of wealth. The more wealth there is, the more money the central bank creates to facilitate the exchange of wealth.

It is all based on trust.

Answer 2

All forms of money creation are an extension of seignorage but it is possible to increase the SUPPLY of money without printing it.

First, lets imagine a world in which the Treasury printed only $1,000,000 in currency. That is the gross supply of money. There are two banks in this world, one central bank and two people. All money is owned by the two people. Lets assume they deposit all but $50 each into the two banks. That $50 is outside the direct control of the central bank.

Now, lets imagine the central bank doesn't believe only two people could use $1,000,000 so they set up a reserve requirement of 25% or for every one dollar deposited 25 cents must be deposited in the central bank. Now the money supply is $750,037.50. They just shrank the money supply.

Now imagine the government, (yeah I know we are short on people here) wants to build a dam because the valley the two people live in floods. It will cost $500,000. There are three choices of ways to pay for it. The government can print the money. Many South American countries do this because collecting taxes is too difficult. It is very damaging to their economies. A second choice is to tax the two citizens for it. This has an effect on the economy if it triggers the withdrawal of money from the banking system or causes additional money to roll into the system due to the reserve requirement. Finally, they can borrow the money.

Lets assume they decide to build it over five years at $100,000 per year and that they decide to borrow the money. So the government issues $100,000 in bonds and the central bank buys them. It is used to pay the two people's wages to build the dam. So $100,000 comes out of the reserves account and goes back into the general population who then deposit it and $75,000 stays in the available cash and $25,000 goes to more reserves. Until the government taxes and takes the money back, the cash available remains in the system. Now if the central bank sells these bonds to the public, it will remove $100,000 -$25,000 from the supply of money.

Now imagine that the government wants to pay the interest and the interest is 10% so it prints $10,000. This additional money rolls into the system but to protect the economy from disruption the central bank increases the reserve requirements to fully absorb the additional funds through reserve requirements.

The gross supply of money is the same plus the $10,000. The supply available to the public changes.

The Fed can buy or sell bonds, change the reserve requirements or permit seignorage by the Treasury to alter the supply of money.

Answer 3

In the US the fed buy and sells overnight repurchase agreements to control the fed funds rate(the rate banks charge each other on overnight loans). This has the effect of adjusting the "money" supply everyday.
see http://en.wikipedia.org/wiki/Repurchase_agreement

Answer 4

The Fed can use 3 economic techniques: a million) Open industry Operations; sell government securities with the intention to extend the money furnish. 2) Adjusting decrease fee fee; decrease interest fee with the intention to extend the money furnish. 3) Adjusting the mandatory Reserve Ratio; provide banks the flexibility to lend extra with the intention to extend the money furnish. This infrequently occurs.

Answer 5

central bank is the final authority to take financial decisions, read WALL STREET JOURNAL every day.