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the creation of money in existing currencies is centrally controlled This is a common misunderstanding. For typical fiat currencies, money creation is highly d
by nhaehnle 13y ago
the creation of money in existing currencies is centrally controlled
This is a common misunderstanding. For typical fiat currencies, money creation is highly decentralized in the banking system. Most money creation happens when banks give out loans. Conversely, most money destruction happens when loans are paid back.
This is actually why our system works so well: the supply of money is not controlled by a central (and therefore fallible) institution, and neither is it fixed (which would be even worse). Instead, it adapts automatically to the demand of money (perhaps one should better say "liquidity" here) via market mechanisms.
- valtron 13y agoInteresting point, and you're right: I was only considering printed money!
- nhaehnle 13y agoExactly. And even with printed money, one could reasonably argue that the fact that money is printed centrally is irrelevant for the behavior of the economy. After all, central banks typically just react to the demand for physical money that they observe via the requests that come from banks.