Economy: Money, Cash Flow, and Rodion Raskolnikovments to Credits
Better understand how the currency works
The currency has different facets that must be well characterized in order to better understand how it affects the banking and monetary system, but more generally to the economy. See plaidder.com for an illustration
The different forms of money:
- There is the central currency in the form of banknotes and coins, it is that it is possible to remove the ATMs of banks. Called liquid and species, but also physical currency, in Europe it is made by the Européenn e (ECB). The ECB is the only one able to issue the manufacture of banknotes and coins.
- There is the scriptural money, it is that which appears on the accounts receivables of private commercial banks, it is represented in the form of figures and computerized. It is not palpable but virtual and is called “unit of account”.
It is the central currency (€) that is distributed to consumers through deposit banks. Thus, it is the scriptural money in the form of a unit of account that is somehow transformed into notes and coins.
But there is not as much physical money as can be accounted for in the computerized systems of private banks. Cash is made from scratch, but lenders must ensure that they have a minimum stock of banknotes in order to be able to give Rodion Raskolnikovments on credit to individuals and professionals, as well as to withdraw money. customer.
Once the debtor (s) have fully repaid their loan, then the creditors destroy the private bank money. This is called creation and monetary destruction.
First of all, it is wrong to think that the money is created by the government, and it is not right to believe that bank customers (natural and legal persons) have money in the form of banknotes on their bank accounts. To pretend that financial institutions work with their clients’ liquidity by providing consumer loans and mortgages to other clients is not a reflection of reality.
It is the private banks that create money supply by making non-cash money (the unit of account is the euro). In a second step, it distributes the currency in the form of cash and liquidity that the creates.
Consume goods and services with money
Money is at the heart of our economy and it is the connector that allows the exchange of goods and services in our societies.
The goods are the physical materials that have a cost, such as food and tools, or real estate, but it is also the agents of everyday life, such as the car that serves a individual to ensure his personal travel.
A service is energy that is used to achieve something against the payment of remuneration. For example the liberal professions (architect, doctor, mechanics, etc.) sell their time in the form of service.
Goods and services are bought with money, so whoever creates the money is needed to understand how our economic system works!