How is money created?

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   scoopposted 12 years ago

   How is money created?

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   LandmarkWealthposted 12 years ago

   Money (meanng currency) is created in the US by the Federal Reserve, and in other countries their corresponding central banks.  Often Recklessly I might add.  But real money is gold, which is the one universal form of money since the beginning of time.  For better or worse the creation of currency is not longer in anyway connected to the supply of gold.  So money creation is essentially arbitrary by the Gov't.   That leads to a complex discussion on the impact of creating too much currency and how it affects the buying power and impacts lifestyle of citizens.

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      Greg Cremiaposted 12 years agoin reply to this

      If gold is real money where can you spend it? How do you get change? I have been all over the world and have never seen anywhere you can buy something with gold.

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      LandmarkWealthposted 12 years agoin reply to this

      Technically you can't as we are no longer permitted to mint currency anymore. It is not legal to do so. My point is the price of gold represents the appreciation or depreciation of a currency since the intrinisc value hasn't changed.Its the benchmark

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   Elijahokelleyposted 12 years ago

   Money can be anything that arises in a market and is accepted as a medium of exchange. Today, money is created through Fractional Reserve banking which is helped greatly by the Federal Reserve in the United States and in other countries by their own central banks.
   Through fractional reserve banking, banks can loan out more money than they actually possess. Say someone deposits 50 dollars in a bank. If the bank has a reserve requirement of 10% then the bank can loan out 45 dollars. This 45 dollars is then placed in another bank. With a reserve requirement of 10% this bank can loan out 40.50. This process continues and effectively increases the money supply and is called the money multiplier which explains how money is created.
   I've written on what money is and the types of money as my latest hubs and plan on writing one about how money is created soon.

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   Clarke Stevensposted 12 years ago

   To create money, you simply need people who are willing to accept it.  If you are the State of California, or the Bank of Siberia, and people are willing to accept your paper as payment, then you've created money.
   
   Money can be currency printed by a mint.  Or it can simply be an IOU, an electronic entry or a deposit listed on a bank statement.
   
   Banks have an interesting way of creating money.  Using the Money Multiplier, they can create much more money than a government's treasury can mint. I recently wrote a Hub about this.

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