Part 4 The western countries.
Banks and MONEY :
When the bank discounts ( or rediscount) a merchant’s bill
it pays the owner of the bill ( or he/she’s bank ) the face
value less the interest’s , it thus put into circulation banknotes
for a value equal to this amount.
When time come to pay the bill , it recieves this sum back , the
same amount in banknotes is withdrawn from circulation.
The fluctuations in the volume of it’s collection off bills wil thus
determine the amount of paper money in circulation.
As the merchants volume of bills presented for discounting
increases in periods of crisis ( ok got it ) and depression , the issue
of papermoney covered by the discounted bills constitute a flexible
( in fact very flexible ) currency instrument , wich makes it possible
to adobt the stock of currency to the economy need of means of
One might suppose that this bank money originates from payments
in of cash by the depositors , but this is only partly thrue ( this is
in fact a very smal part ).
A large share of bank deposits do not originate from payments in
actually made by the banks clients , but from the advances on
current account ( overdraft’s ) granted by the bank to capitalist’s.
Those are the loan that make deposits.
The bulk of the deposits arise out of the actions out of the banks
themselves , for by granting loans , allowing money to be drawn
on overdraft or by purcasing securities, ok a bank create a credit
in it’s books wich is equivalent to a deposit.
First the bank deposits thus created or at least the currency accounts,
They “relly represent currency” , since they can be used for any
transactions of purcase or payment within the country.
They represent a fiducery currency because in the last resort
their circulation depend of the management and solvery of the
banks and not the intrinsic value of the universal eqivalent , and
Second the they represent a public fiducery currency because in all
the advanced countries all the importent deposit banks are linked
to the central bank of issue by a special designed system wich
ensures that the bank money is covered by banknotes
of the central bank.
If a bank by granting a loan on current account
to Mr Capitalist (we call him Mr C ) increases he’s deposit
from 10 to 12 million ( pound/kroner/value ok got it ? )
Mr C will use these 12 million to pay a debt with
Mr Also capitalist ( we call him Mr Ac ) and / or buy good’s
from Mr Super capitalist ( we call him Mr Sc ).
These other capitalists also have bank accounts .
If there bank accounts are in the same bank as Mr C
all these trancsactions will take place by comparison to
entries and will not require a transfer of any banknotes.
The deposit of Mr C ‘s 12 million will be transfered to
Mr Sc and/or Mr Ac ‘s accounts directly.
If there accounts are with other banks , the transfers
in question will require a transfer in cash only the the extend
that these other banks do not have to transfer an equal
amount to Mr C’s bank.
Actually clearing houses ( or what they call them ) specifically
set up to this purpose reduce the amount of cash transfered
from any bank to any other to an absolute minimum.