Quiz

What types of money are part of our monetary system?

Cash as notes and coins (governmental).
Central bank money in accounts at the central bank (governmental).
The money in our bank accounts, called deposit money (non governmental).

Who creates our money?

Commercial banks.
The state.
The cash cow.

What gives the state money its value?

The gold backing.
The state legal system and especially the tax system.
The goods and services produced in the country.

Can we ordinary people get an account with central bank money?

No, because only banks and the government can have accounts with the central bank.
No, we ordinary people can only open an account with deposit money at a commercial bank. If we want to have state money, we can have our deposit money paid out in cash.
If the central bank were to introduce the digital euro, also ordinary people could have an account with central bank money.

What gives the banks’ deposit money its value?

The fact that we can exchange it for state cash at any time.
The banks' equity capital.
The legal framework, banking supervision, statutory deposit insurance and additional state guarantees in the event of a crisis.

We live in a two-staged monetary system, what does that mean?

There is state cash and non-cash central bank money.
On the one hand there is state money (cash and in central bank accounts) and on the other hand there is the banks' deposit money.
The state issues the actual currency and banks issue second-order money that derives its value from the state money.

What is the special business model of banks?

They create deposit money by granting loans.
They pass on savers' money to borrowers.
They can operate irresponsibly, because in case of doubt they are rescued by the state.

What happens the moment a loan is repaid?

The deposit money with which the loan is repaid to the bank expires.
The bank can keep the repaid deposit money.
New deposit money is created.

We live in a credit money system, what does that mean?

Money is created when a loan is granted, i.e. with an equal amount of debt on the part of the borrower.
For someone to be in the black ink (savings), someone else must be in the red ink (debt).
There must always be as many debts in the world as there is money.

Why is the state not a debtor like everyone else?

Because the state has the monopoly on currency and can afford debts. It alone may and must make the actual currency.
Because the state central bank can create unlimited amounts of money and cannot go bankrupt.
Because even a eurozone state could leave the euro and reintroduce its own currency, which it can then create indefinitely.

Who creates the money with which government bonds are bought?

The banks. They finance the state with the deposit money they create.
The central bank, as government bonds can only be bought with government central bank money.
The citizens with their tax payments.

What is the function of government bonds?

The state sells government bonds to take superfluous central bank money from the banks.
Banks and insurance companies rely on government bonds as safe investments.
Government bonds are essential for the government to raise the money it needs to function.

What is the Eurozone’s problem?

The states in the Eurozone have contractually neutered their money creation privilege.
The Eurozone itself has no institutions empowered to spend money and stabilise the economy in crisis.
There are 19 different government bonds, which is why the ECB cannot control the interest rate as easily as a normal, national central bank.

What problem would there be if the state actually repaid its national debt?

The repaid money expires.
The money supply falls and with it, sooner or later, demand and economic output. There would be a recession.
There would be no problems, in fact there would be a considerable economic upswing without government debt.

How can inflation be fought?

Inflation is an uncontrollable force and can befall us at any time, even in peacetime.
The central bank can raise the key interest rate so that the demand for loans and thus the money creation of the banks decreases.
The state can raise taxes. In this way it reduces the demand of the private sector and thus the pressure on prices.

Why is deflation – a rising value of money – so dangerous?

In the case of deflation, investment and consumption are postponed. Demand collapses.
There is a downward spiral in which collapsing demand and unemployment become more and more intense.
The central bank is powerless with its key interest rate in the case of deflation. Only deficit spending by the government and thus new public debt can break the trend.

Modern Money : The State Can Do It

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