How is money made

Worldview

When money was not a concept, we exchanged goods and services, through a barter system. But the value of exchange was not equal. Say a bag of apples for a kilo of wheat, or a dozen sheep for a fur coat? To quantify these exchanges our old folks started using valued exchanges in terms of currencies, as early as 700 BCE, there are records of using minted coins of copper, gold, and other metals...

Fast forward to the current economics we still use these methods as paper money for the exchanges. But how is it made? and how is it valued?

When money was only paper and coins, they were made in proportion to the gold reserve the government had by the central bank. This was the only money in circulation, apart from land holdings, companies, and valuables.

And then came the private banks or commercial banks.

Central banks don't make their hands dirty in circulating the money, they lend it to commercial banks in exchange for securities or assets. The central banks make up for less than 10% of money created, the rest is created by commercial banks or just banks.

Say you saved 100 dollars in banks, they assume that you are not going to withdraw that money immediately. They take a gamble (oh my bad, it's statics) and assume you are not going to withdraw more than $10 at any given point, so they can lend out 90$. Or even better the bank says $100 is their entire deposit and lends out $900. This money never existed, it was just created from your deposit.

Oh, there should be this much cash then right? nope.

The extra money created is digital or on bonds or cards.... they cannot print money so they give it as credit. Just don't spend it all at once or they will get a bank run..

There is no say to it by the government? Yes, it is called the reserve. The lending banks need to have a minimum reserve, ie if the government imposes less reserve say 20% the banks can only lend out $200, the lesser it is the tighter the economy gets.

Like all things money is affected by supply and demand. If more money is created the value is reduced, and this gets to "Inflation"

So how does this all work now? As we got to the point of no barter?

There is still a barter but it's all hidden. It's called the "debt". If I need a house I go to the bank and take a loan for some collateral. I go to work every day and get paid for the services I provide in exchange for my time... Eventually, I made enough to get my debt cleared. Now I own my house.

Money is just a pice of paper with no inherent value to it. It's just a promise until it is converted into something else.

title: How is money made title_hover: 💡➡️💰🏭 created_at: 2019-10-02T14:52:16.823Z updated_at: 2019-10-02T14:52:16.823Z tldr: 90% of money is digital? wtf! is_published: 1 star: false category: Worldview share_type: share

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