Because then commercial banks and other financial institutions would need to keep some of that high-powered money
in reserve in order to be able to meet demands for it and so on.
More specifically, Brown recommends a growth rate for the monetary base equal to the estimated long-run growth rate for the real demand of high-powered money
In comparison, for dollars, the Federal Reserve determines the amount of high-powered money
that is produced (currency plus bank reserves), which ultimately determines the total number of dollars in the world.
This high-powered money
will multiply by as much as ten times as it circulates throughout the U.
There are also four identities defining real income, the change in international reserves, the stock of money, and the stock of high-powered money
Table A-1 Measures of Seigniorage Variables Description Monetary Base Reserve money (line 14 in IFS) (or high-powered money
) Seigniorage l: Ratio of the change in high powered money to nominal GDP (Fischer 1982) Seigniorage 2: Ratio of high-powered money
to nominal GDP in current period minus ration of high-powered money
to nominal GDP in last period plus the product of the ratio Of high powered money to nominal GDP in last period times the growth rate of nominal GDP In current period to one plus the growth rate of GDP in current period (Walsh 1998).
Monetisation describes the process through which the central bank replaces government bonds with high-powered money
, thus injecting new money into the system.
The policy framework has changed throughout transition, from broad money targeting (1990-1996) to high-powered money
targeting (1997-2005), and then to inflation targeting (August 2005).
By increasing the stock of high-powered money
, the open-market purchase drives down nominal and real interest rates, and so increases consumption and investment.
The change in the deposit-currency ratio alone would have produced a decline of 37 per cent; the change in the deposit-reserve ratio, a decline of 20 per cent; interaction between the two ratios, a rise of 10 per cent; these three converted the 171/2 per cent rise that high-powered money
would have produced into a 35 per cent decline in the stock of money.
The euro banknotes from Holland would end up as the source of additional deposits held by member banks with the central banks still remaining in monetary union and so adding to the amount of high-powered money
circulating in that truncated area.
A high-powered money
laundering steering group met recently to consider the implications of the changeover and review anti-fraud arrangements.