Você está na página 1de 31
MONEY , BANKING, & MONETARY POLICY
MONEY , BANKING, & MONETARY POLICY
MONEY , BANKING, & MONETARY POLICY
MONEY , BANKING, & MONETARY POLICY

MONEY , BANKING, &

MONETARY POLICY

MONEY , BANKING, & MONETARY POLICY
An Overview of Money  Money  is anything that is generally accepted as a medium
An Overview of Money  Money  is anything that is generally accepted as a medium
An Overview of Money  Money  is anything that is generally accepted as a medium

An Overview of Money

An Overview of Money  Money  is anything that is generally accepted as a medium
An Overview of Money  Money  is anything that is generally accepted as a medium
  • Money

    • is anything that is generally accepted as a medium of exchange.

    • The sets of assets in an economy that people regularly use to buy goods and services from other people.

Money is not income, and money is not wealth. Money is:

a means of payment / medium of exchange a store of value a unit of account

What is Money?  Barter is the direct exchange of goods and services for other goods
What is Money?  Barter is the direct exchange of goods and services for other goods
What is Money?  Barter is the direct exchange of goods and services for other goods

What is Money?

What is Money?  Barter is the direct exchange of goods and services for other goods
  • Barter is the direct exchange of goods and services for other goods and services.

  • A barter system requires a double coincidence of wants for trade to take place. Money eliminates this problem.

  • As a medium of exchange, or means of payment, money is generally accepted by buyers and sellers as payment for goods and services.

What is Money?  As a store of value, money serves as an asset that can
What is Money?  As a store of value, money serves as an asset that can
What is Money?  As a store of value, money serves as an asset that can

What is Money?

What is Money?  As a store of value, money serves as an asset that can
 As a store of value, money serves as an asset that can be used to
As a store of value, money
serves as an asset that can be
used to transport purchasing
power from one time period
to another.
What is Money?  As a unit of account, money is a standard that provides a
What is Money?  As a unit of account, money is a standard that provides a
What is Money?  As a unit of account, money is a standard that provides a

What is Money?

What is Money?  As a unit of account, money is a standard that provides a
 As a unit of account, money is a standard that provides a consistent way of
As a unit of account, money
is a standard that provides a
consistent way of quoting
prices.
What is Money?  Money is easily portable, and easily exchanged for goods at all times.
What is Money?  Money is easily portable, and easily exchanged for goods at all times.
What is Money?  Money is easily portable, and easily exchanged for goods at all times.

What is Money?

What is Money?  Money is easily portable, and easily exchanged for goods at all times.
 Money is easily portable, and easily exchanged for goods at all times.  The liquidity
Money is easily portable, and
easily exchanged for goods at
all times.
The liquidity property of
money makes money a good
medium of exchange as well
as a store of value.
Characteristics of MONEY Acceptability -- people must be willing to accept it as a means of
Characteristics of MONEY Acceptability -- people must be willing to accept it as a means of
Characteristics of MONEY Acceptability -- people must be willing to accept it as a means of

Characteristics of MONEY

Characteristics of MONEY Acceptability -- people must be willing to accept it as a means of

Acceptability

--

people

must

be

willing

to

accept

it

as

a

means

of

payment

and

in

settlement of a debt

Durability -- must last a reasonable length of time before deteriorating

Divisibility -- to function as money an asset must be capable of division into smaller units to

accommodate transactions of differing value

Characteristics of MONEY  Portability / Convenience -- to function as money an asset must be
Characteristics of MONEY  Portability / Convenience -- to function as money an asset must be
Characteristics of MONEY  Portability / Convenience -- to function as money an asset must be

Characteristics of MONEY

Characteristics of MONEY  Portability / Convenience -- to function as money an asset must be
  • Portability / Convenience -- to function as money an asset must be portable and easy to use, it must be light, small to carry around and easy to transfer ownership

  • Uniformity -- money of the same value must be of uniform quality

  • Stability of Value -- in order to fulfil its various functions (especially as a store of wealth and as a means of evaluating future payment), it must retain its value

  • Hard for Individuals to Produce Themselves -- it must be hard to forge

FORMS of MONEY · Commodity Money – money that takes the form of a commodity with
FORMS of MONEY · Commodity Money – money that takes the form of a commodity with
FORMS of MONEY · Commodity Money – money that takes the form of a commodity with

FORMS of MONEY

FORMS of MONEY · Commodity Money – money that takes the form of a commodity with

· Commodity Money money that takes the form of a commodity with intrinsic value. Something that performs the function of money and also has alternative, non- monetary uses, e.g., gold, silver, cigarettes. For hundreds of

years gold could be used directly to buy things, but it also

had other uses ranging from jewelry to dental fillings.

Fiat Money/token money -- money without intrinsic value that is used as money because of government

decree. Something that serves as money but has no other important uses, e.g., Coins, currency and checkable deposits (current account)

Definition of Money Supply (M1, M2 and M3) · Definition of Money Supply : the quantity
Definition of Money Supply (M1, M2 and M3) · Definition of Money Supply : the quantity
Definition of Money Supply (M1, M2 and M3) · Definition of Money Supply : the quantity
Definition of Money Supply (M1, M2 and M3) · Definition of Money Supply : the quantity

Definition of Money Supply

(M1, M2 and M3)

· Definition of Money Supply:

the

quantity

of

money

available

in

the

economy

 

Definition of Monetary Policy:

 

the setting

of

the

money

supply

by

policymakers in the central bank

Definition of Money Supply (M1, M2 and M3) M1 – the narrowest definition of money supply,
Definition of Money Supply (M1, M2 and M3) M1 – the narrowest definition of money supply,
Definition of Money Supply (M1, M2 and M3) M1 – the narrowest definition of money supply,
Definition of Money Supply (M1, M2 and M3) M1 – the narrowest definition of money supply,

Definition of Money Supply

(M1, M2 and M3)

M1 the narrowest definition of money supply, consists of

currency

outside

banks

traveler’s checks

plus

checking

accounts

plus

  • Currency held outside banks includes coins and paper money in the hands of public

  • Checking accounts balances can be withdrawn by using check

  • Traveler’s check issued in specific denominations, these are treated as cash

  • M1 = currency held outside banks + checking accounts + traveler’s check

Definition of Money Supply (M1, M2 and M3) M2 – A broader definition of money supply,
Definition of Money Supply (M1, M2 and M3) M2 – A broader definition of money supply,
Definition of Money Supply (M1, M2 and M3) M2 – A broader definition of money supply,
Definition of Money Supply (M1, M2 and M3) M2 – A broader definition of money supply,

Definition of Money Supply

(M1, M2 and M3)

M2 A broader definition of money supply, it includes all of the components of M1 plus time deposits and savings deposits Time deposits (fixed deposits) interest-earning deposits with a specified maturity, which are subject to penalty for early withdrawal Savings deposits interest-earning deposits with no specific maturity

*

*

M2 = M1 + time deposits + saving deposits

Definition of Money Supply (M1, M2 and M3) M3 = M2 + deposits with non-bank financial
Definition of Money Supply (M1, M2 and M3) M3 = M2 + deposits with non-bank financial
Definition of Money Supply (M1, M2 and M3) M3 = M2 + deposits with non-bank financial
Definition of Money Supply (M1, M2 and M3) M3 = M2 + deposits with non-bank financial

Definition of Money Supply

(M1, M2 and M3)

M3

=

M2

+

deposits

with

non-bank

financial institution (e.g., deposits of finance companies and post office saving)

CREDIT CARD ???   is not a form of money; when a person uses a
CREDIT CARD ???   is not a form of money; when a person uses a
CREDIT CARD ???   is not a form of money; when a person uses a

CREDIT CARD ???

CREDIT CARD ???   is not a form of money; when a person uses a
  • is not a form of money; when a person

uses a credit card, he or she

is simply

deferring payment for the item

serves

as

a

temporary

medium

of

exchange but not a store of value

BANKING Structure of Banking System Central bank :  * an institution designed to oversee the
BANKING Structure of Banking System Central bank :  * an institution designed to oversee the
BANKING Structure of Banking System Central bank :  * an institution designed to oversee the

BANKING

BANKING Structure of Banking System Central bank :  * an institution designed to oversee the

Structure of Banking System

Central bank :

  • * an institution designed to oversee the banking system and regulate the

  • quantity of money in the economy

Financial institution :

  • * privately owned institutions that serve the general public

  • * intermediaries that stand between savers from whom they accept deposits ;

  • and investors to whom they make loans

Functions of Bank Negara Malaysia 1. Banker to commercial banks (banker’s bank) 2. Banker for the
Functions of Bank Negara Malaysia 1. Banker to commercial banks (banker’s bank) 2. Banker for the
Functions of Bank Negara Malaysia 1. Banker to commercial banks (banker’s bank) 2. Banker for the

Functions of Bank Negara Malaysia

Functions of Bank Negara Malaysia 1. Banker to commercial banks (banker’s bank) 2. Banker for the
  • 1. Banker to commercial banks (banker’s bank)

  • 2. Banker for the government

  • 3. Controller of money supply

  • 4. Lender of last resort

  • 5. Others

Credit Creation  To explore a process on how banks create money.  To understand this
Credit Creation  To explore a process on how banks create money.  To understand this
Credit Creation  To explore a process on how banks create money.  To understand this

Credit Creation

Credit Creation  To explore a process on how banks create money.  To understand this
  • To explore a process on how banks create money.

  • To understand this process, you need to be familiar with some basic principles of accounting.

    • Assets are things a firm owns that are worth something. Most important among a bank’s assets are its loans.

    • A firm’s liabilities are its debts-what it owes. A bank’s most important liabilities are its deposits.

    • deposits in banks are considered as liability in banks’ balance sheet

    • as deposits are held in banks, the behaviour of banks can influence the quantity of deposits in the economy, and therefore, the money supply

Credit Creation Simple Case of 100-Percent-Reserve Banking  Definition of Reserves : deposits that banks have
Credit Creation Simple Case of 100-Percent-Reserve Banking  Definition of Reserves : deposits that banks have
Credit Creation Simple Case of 100-Percent-Reserve Banking  Definition of Reserves : deposits that banks have

Credit Creation

Credit Creation Simple Case of 100-Percent-Reserve Banking  Definition of Reserves : deposits that banks have

Simple Case of 100-Percent-Reserve Banking

Definition of Reserves:

deposits that banks have received but have not loaned out.

Assumption:

*

currency is the only form of money

*

total quantity of currency is RM100, and therefore

*

the supply of money is RM100

Credit Creation Simple Case of 100-Percent-Reserve Banking   the bank will keep the deposits until
Credit Creation Simple Case of 100-Percent-Reserve Banking   the bank will keep the deposits until
Credit Creation Simple Case of 100-Percent-Reserve Banking   the bank will keep the deposits until

Credit Creation

Credit Creation Simple Case of 100-Percent-Reserve Banking   the bank will keep the deposits until

Simple Case of 100-Percent-Reserve Banking

  • the bank will keep the deposits until the depositor comes to withdraw or write a check against his balances

  • therefore, all deposits are held as reserves 100-percent-reserve banking

FIRST NATIONAL BANK

 

Assets

RM

Liabilities

RM

Reserves

100

Deposits

100

Money Creation Fractional-Reserve Banking   Definition of fractional reserve banking :  a banking system
Money Creation Fractional-Reserve Banking   Definition of fractional reserve banking :  a banking system
Money Creation Fractional-Reserve Banking   Definition of fractional reserve banking :  a banking system

Money Creation Fractional-Reserve Banking

Money Creation Fractional-Reserve Banking   Definition of fractional reserve banking :  a banking system
  • Definition of fractional reserve banking:

    • a banking system in which banks hold only a fraction of deposits as reserves

  • Definition of Reserve Ratio:

    • the fraction of deposits that banks hold as reserves

  • bank reserves consist of cash in the bank plus its deposits at

  • central bank (BNM)

  • The required reserve ratio is the ratio of reserves to deposit

  • that banks are required , by law , to hold

A bank’s required reserve = deposits

ratio

x

required reserve

Therefore, actual reserves - required reserves = excess reserves

Money Creation Fractional-Reserve Banking  If the required reserve ratio is 20%, the bank has excess
Money Creation Fractional-Reserve Banking  If the required reserve ratio is 20%, the bank has excess
Money Creation Fractional-Reserve Banking  If the required reserve ratio is 20%, the bank has excess

Money Creation

Money Creation Fractional-Reserve Banking  If the required reserve ratio is 20%, the bank has excess

Fractional-Reserve Banking

  • If the required reserve ratio is 20%, the bank has excess reserves of $80. With $80 of excess reserves, the bank can have up to $400 of additional deposits. The $100 in reserves plus $400 in loans equal $500 in deposits.

Balance Sheets of a Bank in a Single-Bank Economy

In Panel 2, there is an initial deposit of $100. In Panel 3, the bank has made loans of $400.

Panel 1

 

Panel 2

 

Panel 3

ASSETS

LIABILITIES

ASSETS

LIABILITIES

ASSETS

LIABILITIES

Reserves 0

0 Deposits

Reserves 100

100 Deposits

Reserves 100

500 Deposits

 

Loans 400

Money Creation Fractional-Reserve Banking The Creation of Money When There Are Many Banks Panel 1 Panel
Money Creation Fractional-Reserve Banking The Creation of Money When There Are Many Banks Panel 1 Panel
Money Creation Fractional-Reserve Banking The Creation of Money When There Are Many Banks Panel 1 Panel

Money Creation

Money Creation Fractional-Reserve Banking The Creation of Money When There Are Many Banks Panel 1 Panel

Fractional-Reserve Banking

The Creation of Money When There Are Many Banks

Panel 1

Panel 2

Panel 3

LIABILITIE

LIABILITIE

ASSETS

ASSETS

S

S

Reserves 100

180

Deposits

Loans 80

 

Reserves 100

100 Deposits

LIABILITIE LIABILITIE ASSETS ASSETS S S Reserves 100 180 Deposits Loans 80 Reserves 100 100 Deposits

Reserves 80

144

Deposits

Loans 64

 

Reserves 80

80

Deposits

LIABILITIE LIABILITIE ASSETS ASSETS S S Reserves 100 180 Deposits Loans 80 Reserves 100 100 Deposits

Reserves 64

Summary:

115.20 Deposits

Deposits

Reserves 64

64

Deposits

Bank 2 Bank 1 100 80
Bank 2
Bank 1
100
80
ASSETS
ASSETS
Reserves 20 Loans 80
Reserves 20
Loans 80
LIABILITIE LIABILITIE ASSETS ASSETS S S Reserves 100 180 Deposits Loans 80 Reserves 100 100 Deposits
Reserves 16 Loans 64
Reserves 16
Loans 64
LIABILITIE LIABILITIE ASSETS ASSETS S S Reserves 100 180 Deposits Loans 80 Reserves 100 100 Deposits

Reserves 12.80

LIABILITIE LIABILITIE ASSETS ASSETS S S Reserves 100 180 Deposits Loans 80 Reserves 100 100 Deposits
LIABILITI ES
LIABILITI
ES
100 Deposits
100 Deposits
LIABILITI ES 100 Deposits 80 Deposits 64 Deposits
80 Deposits
80 Deposits
LIABILITI ES 100 Deposits 80 Deposits 64 Deposits
64 Deposits
64 Deposits
LIABILITI ES 100 Deposits 80 Deposits 64 Deposits

Bank 3

64

Bank 4

51.20

.

.

.

.

Total

.

.

500.00

The Money Multiplier Bank 1 100 Bank 2 80 Bank 3 64 Bank 4 51.20 .
The Money Multiplier Bank 1 100 Bank 2 80 Bank 3 64 Bank 4 51.20 .
The Money Multiplier Bank 1 100 Bank 2 80 Bank 3 64 Bank 4 51.20 .
The Money Multiplier Bank 1 100 Bank 2 80 Bank 3 64 Bank 4 51.20 .

The Money Multiplier

Summary:

Deposits

Bank 1

100

Bank 2

80

Bank 3

64

Bank 4

51.20

.

.

.

.

.

.

Total

500.00

The money multiplier is the multiple by which deposits can increase for every dollar increase in reserves.

Money multiplier =

1

Required reserve ratio

In the example above, the required reserve ratio is 20%. Each dollar increase in reserves could

cause an increase in deposits of $5 when there is no leakage out of the system. An additional $100 of reserves result in additional deposits of $500.

MONETARY POLICY  Definition of Monetary Policy : the setting of the money supply by policymakers
MONETARY POLICY  Definition of Monetary Policy : the setting of the money supply by policymakers
MONETARY POLICY  Definition of Monetary Policy : the setting of the money supply by policymakers
MONETARY POLICY  Definition of Monetary Policy : the setting of the money supply by policymakers

MONETARY POLICY

Definition of Monetary Policy:

the setting of the money supply by policymakers in the central bank.

The mechanics of monetary policy include all the measures which influence  the supply of money  the price of money (the rate of interest)

MONETARY POLICY 2 types of monetary policy * contractionary, restrictive or tight monetary policy * expansionary
MONETARY POLICY 2 types of monetary policy * contractionary, restrictive or tight monetary policy * expansionary
MONETARY POLICY 2 types of monetary policy * contractionary, restrictive or tight monetary policy * expansionary
MONETARY POLICY 2 types of monetary policy * contractionary, restrictive or tight monetary policy * expansionary

MONETARY POLICY

2 types of monetary policy

* contractionary, restrictive or tight monetary policy * expansionary or cheap monetary policy

Aims of monetary policy

* to maintain stability of domestic prices

* fluctuating prices will cause disturbances in economy * to achieve higher rates of economic growth * to eliminate fluctuations in productions and

employment

* if demand is too low, workers will be retrenched;

unemployment will occur * To achieve full employment of resources

MONETARY POLICY Tools of Monetary Control Quantitative tools - includes the required reserve ratio, the discount
MONETARY POLICY Tools of Monetary Control Quantitative tools - includes the required reserve ratio, the discount

MONETARY POLICY

MONETARY POLICY Tools of Monetary Control Quantitative tools - includes the required reserve ratio, the discount
MONETARY POLICY Tools of Monetary Control Quantitative tools - includes the required reserve ratio, the discount

Tools of Monetary Control

Quantitative tools - includes the required reserve ratio, the discount rate and open market operations where the central bank can estimate what amount of money supply will be affected.

1. Open-Market Operation (OMO)

Definition

of

Open Market Operations: the

purchase and sale of government securities in financial market so as to influence the size of bank deposits.

Government has authorized the BNM to buy and sell

government securities.

MONETARY POLICY

MONETARY POLICY Tools of Monetary Control 2. Reserve Requirements regulations on the minimum amount of reserves
MONETARY POLICY Tools of Monetary Control 2. Reserve Requirements regulations on the minimum amount of reserves
MONETARY POLICY Tools of Monetary Control 2. Reserve Requirements regulations on the minimum amount of reserves
MONETARY POLICY Tools of Monetary Control 2. Reserve Requirements regulations on the minimum amount of reserves

Tools of Monetary Control

2. Reserve Requirements

regulations on the minimum amount of reserves that

*

banks must hold against deposits

* an increase in reserve requirements means that

- banks must hold more reserves and

- can loan out less of each RM that is deposited

* as a result, it raises the reserve ratio, lowers the money multiplier, and decrease the money supply

*

*

*

* a decrease in reserve requirements means that

lowers the reserve ratio

have excess reserves

banks hold less reserves

to be lent out

* as a result, it raises the money multiplier and increases the

money supply

MONETARY POLICY

MONETARY POLICY Tools of Monetary Control  if r = 20% and original deposit RM1,000, then
MONETARY POLICY Tools of Monetary Control  if r = 20% and original deposit RM1,000, then
MONETARY POLICY Tools of Monetary Control  if r = 20% and original deposit RM1,000, then
MONETARY POLICY Tools of Monetary Control  if r = 20% and original deposit RM1,000, then

Tools of Monetary Control

if r = 20% and original deposit RM1,000, then

money supply = 1/r @ RM1,000 = RM5,000

money created = RM4,000 (money supply-original deposit)

iif r = 50% and original deposit RM1,000, then

money supply = RM2,000; money created = RM1,000

There is an inverse relationship between the required

reserve ratio and the money supply

MONETARY POLICY

MONETARY POLICY Tools of Monetary Control 3. Discount Rate   Banks may borrow from BNM
MONETARY POLICY Tools of Monetary Control 3. Discount Rate   Banks may borrow from BNM
MONETARY POLICY Tools of Monetary Control 3. Discount Rate   Banks may borrow from BNM
MONETARY POLICY Tools of Monetary Control 3. Discount Rate   Banks may borrow from BNM

Tools of Monetary Control

3. Discount Rate

  Banks may borrow from BNM

  The interest rate on the loans that BNM makes to banks is called

the discount rate

  a bank borrows from BNM when it has too few reserves to meet

reserve requirements

  this might occur because the bank made too many loans or

it has experienced recent withdrawals

  therefore, the banking system has more reserves and this allow to

create more money

BNM can alter the money supply by changing the discount rate

MONETARY POLICY

MONETARY POLICY Tools of Monetary Control 4. Funding term given to the conversion of short term
MONETARY POLICY Tools of Monetary Control 4. Funding term given to the conversion of short term
MONETARY POLICY Tools of Monetary Control 4. Funding term given to the conversion of short term
MONETARY POLICY Tools of Monetary Control 4. Funding term given to the conversion of short term

Tools of Monetary Control

4. Funding

term given to the conversion of short term loans to term loans

medium term loans or long

objective to lengthen the payment so that the bank multiple credits

 

cannot

create

 

5. Special Deposits

·

commercial banks are sometimes required to deposit in

 

the central

bank

an additional percentage of their Malaysia

deposits

however,

this

tool

is

not

used

in

MONETARY POLICY

MONETARY POLICY Tools of Monetary Control Qualitative tools  Selective Credit Control  Moral suasion 
MONETARY POLICY Tools of Monetary Control Qualitative tools  Selective Credit Control  Moral suasion 
MONETARY POLICY Tools of Monetary Control Qualitative tools  Selective Credit Control  Moral suasion 
MONETARY POLICY Tools of Monetary Control Qualitative tools  Selective Credit Control  Moral suasion 

Tools of Monetary Control

Qualitative tools

  • Selective Credit Control

  • Moral suasion

  • Special directives

  • Interest rate policy

  • Mortgage control