A message from our CEO about the future of Stack Overflow and Stack Exchange. Read now.
24

Blockchain-based cryptocurrencies like Bitcoin aren't actually that untraceable, because the transfer history of every wallet is public. When cryptocurrencies ever become economically relevant, you can expect law enforcement to put all those currently hyped big data analysis and machine learning technologies to use and data-mine the blockchains for ...


13

Inflation When the Federal Reserve uses quantitative easing, it adds more money to banking ledgers and removes investment opportunities. The amount that they can do is limited by the reality of the economy. Too much and they cause inflation. Not enough and there is deflation. While nominally under the control of the Fed, in reality the amount is ...


7

Only the ECB has the right to issue Euro banknotes (p. 103). States can issue coins up to a total value set by the ECB. At some point during the initial creation of the Euro, and during the accession of new members, the exchange rate is set. From that point, swapping the paper is merely an administrative task.


7

There is some debate about whether it's a good rule in the first place but there is a number of reasons why governments don't do this: Because they don't have to. Governments have in their taxpayers a captive audience that always has to pay; limited only by their willingness to pay. So as long as the population is not too upset by the tax burden and the ...


5

Printing money causes inflation, which is an implicit tax. Worse, inflation is self-reinforcing. So if you print $3.8 trillion one year (USA federal spending), you have to print $7.5 trillion next year. That's the original $3.8 trillion plus an estimated $3.7 trillion for inflation caused by the extra money. That's assuming that you have a $3.9 trillion ...


5

In the United States, the Federal Reserve (central bank) publishes the reserve requirements. Reserve requirements must be satisfied by holding vault cash and, if vault cash is insufficient, also by a deposit maintained with a Federal Reserve Bank. An institution may hold that deposit directly with a Reserve Bank or with another institution in a pass-...


4

To answer the one sentence summary question, I would first correct and clarify not the simplifications made in the detailed summary, but the inaccuracies in the detailed summary. First, be careful to distinguish between "Fractional Reserve Banking" and "Central Banking, the Money Creation, and the Balance Sheet." Fractional Reserve Banking was defined in ...


3

You're correct. The government technically can never run out of money because it runs on the fiat standard Fiat currency is legal tender whose value is backed by the government that issued it. The U.S. dollar is fiat money, as are the euro and many other major world currencies. This approach differs from money whose value is underpinned by some ...


3

Runaway or hyperinflation occurs when there is a lot more money than there are goods at current prices. In theory, you could fix this two ways. First, you could flood the economy with goods, reducing the monetary pressures. I don't know that anyone has really tried that against hyperinflation, as the amount of goods required would be tremendous. ...


2

Many of the arguments for and against the Federal Reserve have to do with it being separate from the Federal government itself. The Fed (Federal Reserve, NOT the Federal government) was created as an independent entity so that it would not become politicized and have to bend to the will of politicians. There is something to be said about the inefficiency of ...


1

I imagine the future to be filled with government backed cryptocurrencies, where trade in one country is only with their own government-backed flavor. In this future hypothetical situation, the government would know when, where, how much was transferred and spent at all times. Blockchain currencies like Ethereum already support and encourage new currencies ...


1

This is an excellent question and it speaks to the fact our media and our schools teach and speak to this topic as if we did not have the worlds' reserve currency. Also, we have been living in a time period where we are dependent on central bank interventions. The world hangs on every pronouncement of the Federal Reserve. So what? So we have the worlds' ...


1

QE was FED buying medium and long-term bonds. The effect of that was to reduce the interest rates of long-term bonds. The question's premise was that this was done to help banks, but it wasn't. It had the opposite effect. This can use some context. After the financial crises, FED lowered the short-term interest rate (FED primary job is overnight ...


1

Tl;dr: There is some effect, but it doesn't really matter. When people take currency out of circulation, whether it be by saving it or for numismatic reasons, the effect is the same. The overall levels of currency circulation decreases, and that has an effect on the fiscal situation within a currency area. It is for this reason that one of the tools that ...


1

There is very little incentive for a democratically elected government to undertake such an initiative. Increasing the money supply by lending inherently promotes investment and growth. The only alternative to increasing the money supply is to print more money, which is typically inflationary. Restricting the ability of the banks to increase the money ...


1

There are already some good answers to the original question so I will just clarify one thing: When government intends to spend an amount of money they typically must acquire it by issuing bonds to a foreign country or by issuing bonds to the Federal Reserve for the cash that it prints. This inevitably ties money creation by the central bank to ...


Only top voted, non community-wiki answers of a minimum length are eligible