What is money? Americans handle money every day in their lives, but few have a real understanding of what money or where it came from. Money can be defined as a unit of account, medium of exchange, store of value, but this gives little idea of what that green stuff, or where it originated.
Two forms of money: currency and savings deposits
The first form of money is the currency, more technically known as the “Federal Reserve Note” A dollar bill is actually a note that says the Fed are you one U.S. dollars .. Dollar Bill is a legal tender, which means it must be accepted as payment for goods or services.
Other forms of money demand deposits, which are sometimes called “checkbook money” This is money that is saved on the commercial banks and formed the majority of all the money from the U.S. ..
Material Values and What’s behind the money behind the question
Historically, banks are required to the stores of gold or silver in reserve to maintain, in case someone came and asked for “hard” money for his bank records. Based on gold or silver reserves of the bank borrowed times the actual amount of their reserves. This worked great for investors and borrowers as well at different times, demanding banks. With the loan, the banks actually create money, because they borrowed more than they actually are.
the bank today same way, except there is no gold or silver behind the question. What is behind this question is rather difficult to define. It consists of currency and coins, and deposits of commercial banks in the Federal Reserve. What this actually means that faith is made up of people of the Federal Reserve System.
What the Federal Reserve Board and how does the Fed Control Money and Banking?
So what is the Fed? How these seven people in Washington affect the money supply is the nation? These seven men, who constitute the Board of Governors of the Federal Reserve System, appointed by the President for the 14-year rotating terms. They are not elected by the people, and people have much control over the decisions of the Fed. Congress and the President has little control over the decisions of the Fed. The Fed is basically an independent, semi-private, semi-public bodies. But exercising almost total control over the currency of that country.
The Fed did this in three ways. The first is by changing the legal reserve requirements. Currently, all banks are required to maintain reserves at least 10 percent of total deposits. Suppose the Fed, this leaves a 15 per cent. The bank loan will reduce as more power must be kept in reserve. Since the loan is repaid, they will save money in the reserves and loans to their reserves equal to 15 percent of their total deposits. If the Fed lowered the requirements, the reverse happen. The Bank will have “money to spare,” the easy credit and more loans will generate.
Another tool “The Fed, the discount rate. This is the rate at which banks can borrow extra money from the Fed. If Fed raised the discount rate, it would prevent a bank loan, which will the amount of money banks have to borrow to lower. Lower level will result in the bank to borrow more money and more money to lend.
Final and most common form of the Fed affects the money supply is through a so-called “open market” relates to the purchase and sale of bonds .. For example, the Fed decided to a certain amount in bonds to sell to private brokers. brokers pay by writing a check. The Fed then these checks to the private bank for payment. Private banks should, in turn, dug. The decrease was caused bank reserves, the amount of loan reduction. Again, the reverse operation, the opposite effect can be achieved. In order to encourage increased lending, the Fed would buy bonds. Pay the money paid into private bank reserves, which means more money for loan purposes.
Through all this, the Fed can not force people to borrow money. This may make it easier to borrow, so encouraging, but individuals and companies still have the option of whether or not they want to borrow. The bank also has a choice whether or not they want to loan money to.
If there is no control over the money supply, banks will lend more money than what they have as a backup. People lose confidence in their banks, and thus the value of money.
Although the money has changed over the years, the basics remain the same. These functions are controlled by the Federal Reserve System.
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