A Short Introduction To What Influences Money Supply In The Modern Economy
It’s undeniable — the world runs on money. This thought is ingrained in all of us and we all understand it deeply. This is evident by the fact that we spend vast amount of hours every day in order to attain more of it.
In the Bitcoin space, we constantly see news, memes and critiques about how the central banks have printed absurd amounts of money yet again. The truth of the matter is that the monetary system does not work quite as simply as that — there are many more players involved that ultimately decide the net amount of new money creation in the world.
This system impacts our lives greatly — from things like interest rates on our savings accounts, mortgages, inflation and asset prices to global problems like the growing wealth inequality gap. Despite the significance, few understand how this system works. We are not taught about it in school.
In this piece, we will examine credit in depth. After the article, you will better understand why it is the cornerstone of our modern economy and how it is the main driver of money creation and be able to inspect the tools that central banks use to control credit.
To understand how money is made, we first need to understand how it’s spent.
We all know what a transaction is — the spending of money for something else , be it a service, a good, an asset or whatever else.
The economy is the sum of all of the transactions in all of its markets.
The economy is the sum of all the transactions in all of its markets.
With that, we can say that money is the basis of each transaction and therefore the basis of the economy.
In order to facilitate a transaction, a person has to spend their hard-earned money for something. Deceptively simple, a transaction is the critical building block of the whole worldwide…