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Interest rates from lenders are still based on risk/supply/demand etc. The question is more, how do you introduce money to the money supply (which you must do
by ethanbond 4y ago
Interest rates from lenders are still based on risk/supply/demand etc.
The question is more, how do you introduce money to the money supply (which you must do if for no other reason than physical wear/destruction of currency) without a central issuer who sets an interest rate on that issuance?
- somewhereoutth 4y agoBanks create money out of thin air when they originate loans. Various regulations and central bank activities are designed to control this process, but they are somewhat indirect - they don't tell a bank 'this is exactly how much money you are allowed to create', instead they enforce things like capital ratios and provide liquidity in various ways, and the money creation is then carried out by the bank rather organically.
- ethanbond 4y agoAnd can’t they currently set whatever rate they want for that still?
- somewhereoutth 4y agoIndeed. Strongly influenced by the ambient financial and regulatory environment of course.