Modern Money

B19　—　Thematic Survey

Is the 10,000 yen in your wallet the same money as the 10,000 yen in your bank account?

Supervised by: Mitsuru Hayama　／　Reading time (main text): course text ~11 min + textbook ~144 min = ~155 min　／　Beyond the text: 6 exercises · 3 readings

What this course teaches you to do

• Can distinguish between banknotes in a wallet and deposits in an account based on whose liability they are.
• Can explain together the mechanism by which lending creates deposits and the factors that constrain it.
• Can state, using balance sheet accounts, what increased and what did not increase with quantitative easing.
• Can trace the chain of government bonds circulating as collateral for settlement, from issuance to their role as an interest rate benchmark.

TEXTBOOK

Lessons (8)

1. The 10,000 yen in your wallet, and the 10,000 yen in your accountBanknotes in a wallet are a liability of the central bank; an account balance is a liability of a commercial bank. Even if the face value is the same, the debtor is different.
2. Why does bank lending increase deposits?Lending creates deposits. However, this must be considered together with what constrains lending.
3. What has the central bank controlled?The operating target has changed many times. When reading articles on policy, first check whether the target for that year was an interest rate or a quantity.
4. Government Bonds: Whose Debt, and Whose Asset?Government bonds are a liability for the state and an asset for the holder. The Bank of Japan is the largest holder, but this is the result of purchases from the market, not direct underwriting.
5. Why do government bonds serve as collateral in financial markets?It is not the counterparty's face, but the collateral that carries the credit. The nation's debt has become the foundation for private-sector funds.
6. What had changed before 2008?Read 2008 in this order: Cause → Plumbing → Clog → Central Bank Response.
7. What actually increased with QE?QE is an exchange of national debt for central bank liabilities. What increased were reserves, not banknotes.
8. Digital Money: What It Changes and What It Doesn'tEven for digital money, the first questions are the same — whose liability is it, and is it settled on the central bank's books?

Case studies — applied in the materials (3)

• The weight of being the reserve　United States　2008　The financial district on the night of the crisis
  Sections 6 & 7. The scene on the night of the 2008 crisis when dollars were sent via swaps between central banks, at the stop for the American chapter.
• The digital shore　United States　2009　Upon the internet
  Section 8. How did the dollar's course position Bitcoin, which began in 2009?
• Epilogue　Overview: 2,700 years of the world　from AD 2009　Crypto-assets
  Section 8. Epilogue to the General Remarks: “Crypto-assets” — The history of the idea of a currency without an issuer.

Assessment

6 exercises in this course (4 check, 0 compare, 2 written). Progress is recorded by self-assessment.