Part 5 The western countries.
Finally banks are able to increase their loans on current account
and thus create “Bank Money” , to the extent that the other
banks grant them credit or the central bank allows them to
increase their debit accounts with it.
As mentioned earlier experience had shown the bankers that
in normal times the public does not withdrawn it’s cash from
the bank excess of a relativily small fraction of the total
amount of deposited.
It is suificent that those deposits does not not exceed a definite
relationship with the liquid assets called the cash ratio or
liquidity ratio for the banks to be able in normal circumstances
to give loans on current account and thus create Bank Money.
At exceptional moments the central bank has to step in to prevent
the collapse of this credit system from entailing the collapse of the
entire currency system.
In order to avoid rashness the majority of advanced countries lay
down a cover ratio fixed by the government.
It is now clear that Bank Money makes up a large share of the stock
of currency that is of the totally means of exchange and payment
circulating in a particulary country.
The public fiducery currency created by discounting or by
overdrafts corresponds to needs ( for credit , exchange ,
payment ) inherent in the the economic system.
This fact that the state regulates the creation of this
fiducery currency coresponds to the “social character
of money” wich became more and more marked as
exhange relations became increasingly interlocked and
complex in modern capitalism.
But this regulation wich is indispensable for prober
functioning of the economy can at the same time
lead to many disturbanses .
The state wich regulate the issue of paper money
and ultimately determines the volume of the stock
of currency as a whole is at the same time both seller
and buyer and so needs means of exhange and payment.
From the absolute beginnings of the public fiducery the
government there regulate its issue have being subjected
to the temptations to use it at the same time to meet it’s
The first experiments to made paper money had created
very big inflationary dissasters all around the world.
Even in a bourgeois state conducted according to the
principles of the strictes monetary orthodoxy it is
inevitable that a seasonal and cyclic movement of
increased need for disposable funds lead the treassury
to increase it’s debt to the central bank wich in turn
increase the stock of currency.
This extra currency is normally re absorbable in time , BUT
when the state increases the circulating of currency in order
to finance it’s long therm expresses or much worse it’s
budgetary deflict , risks of loss of value of the currency arise
in so far as no extra commodities corresponds to this extra
mass of currency in circulation.