Arzu ALVAN

Blog

  • PARTIAL RESERVE MONETARY SYSTEM

    Money is created in two basic ways today. The first is cash (fiat / fiat currency) in paper and metal form issued by Central Banks, and the other is loans (debt) created by commercial banks depending on the partial reserve system. Here, we’ll talk about partial reserve banking. It would be descriptive and useful to talk about full reserve banking before partial reserve banking.In the previous system there was a “limited money system”. The Central Bank was able to issue  money in exchange for gold owned by the state. This system was applied in the USA between 1871-1914. The system is called the “classical gold standard” based on limited money or 100 percent gold. (more…)

  • REPO, REVERSE REPO, FED

    The Federal Reserve, the Fed, started overnight reverse repo transactions in 2013. The aim of reverse repo transactions is to control the short-term interest rates. Reverse repo (RRP), reverse repurchase agreements, is a transaction that central banks implement when they want to reduce excess cash in the market. In this way, it is aimed to suppress the downward interest rate. The central bank takes money from banks and issues bonds in return.

    (more…)

  • Limited/Unlimited Money

    Money can essentially be studied in two forms, these are the limited (solid) form and the unlimited form. Limited money is the metals with intrinsic value such as gold, silver, platinum, which cannot be produced in the desired amount by the states, whose amount is limited in the world. Recently, digital currencies have been tried to be added to these. The limited feature adds solidity to the money. (more…)

  • Global Household Debt-to-GDP and Central Banks’ Balance Sheet as of % of GDP

    The ratio of the total household debt to production, which includes the debt of the private sector and households on a country basis as well as the debt of the states in the world, is another important indicator that can give an idea about the magnitude of the destruction to be experienced in the crisis. (more…)

  • Global Government Debts-to-GDP Ratio

     

    In the monetary system of the world, the ballooning created by the unlimitedly printed money in the markets is the most important factor triggering the systemic crisis. Here, the question arises of how countries will be affected by the impending global financial disaster. (more…)

  • REAL ESTATE MARKET ON THE WAY TO CRISIS

    Another important indicator of the global crisis is the ballooning in the real estate market as a result of excessive pricing. It is necessary to briefly summarize the situations in which there is a problem in the real estate market and many of them will show the risk of collapse in the market if they happen. (more…)

  • 10-Year US Bond Rates and US Real GDP Growth Rates

    In Figure 1, we can see the 10-year bond interest rates and real GDP growth rates of the USA.  If we look at the crisis years mentioned earlier, we see that the Real GDP growth rate was lower than the 10-year bond rate, especially in the 2001 crisis. (more…)

  • LIBOR

    LIBOR interest rates have been on the rise since 2015.  As can be seen in Figure, this interest rate rises significantly before every crisis. It rose to 2.4 percent in 2019, which is not seen in the graph, and has started to decline since that year. As of September 2020, this ratio is around 0.82 percent (www.global-rates.com). The crisis comes when this rate starts to decline in the historical cycle.

    The ability to issue  the US dollar outside of the US is one of the most important elements of the global unlimited money issuance experiment.That is, banks outside the US can also create loans depending on their reserve dollars. This money, which we call Euro dollars (Eurocurrency), first appeared in 1957. Euro dollars are time deposits in US dollars in banks outside the US. It is not under the authority of the Fed. There is no connection with the euro currency or the euro zone. The reason for the start is to improve  the financial situation of the European countries that went bankrupt in the World War II and  the funds  of approximately 385 billion euros  are dependent on the eurodollar market for the development of world trade,  also  creates reserves for the offshore banking system, and has become a financial base that has developed over the years and here,the heart of the world dollar beats here.

    Therefore, the euro dollars made the trade more fluid. Dollar loans, which can be found at high interest rates in local markets, can be obtained at much more affordable costs through these banks. The dollar that can be created as a loan outside the USA has increased to 13 trillion dollars after 1980 with this system. As foreign central banks do not have the authority to issue dollars, the Fed established swap lines with these banks as one of the ways to quickly generate money after 2008 (Heyneke and Daya 2016).The money created today leaves the banking system based on the leverage system as a loan, that is, a partial reserve. That is, loans are created through commercial banks. That is to say , some of the fiat money issued  by the Central Banks are reserved  as required reserves by the banks. And the remaining amount is introduced into the market in multiples. Briefly, this called  as “partial reserve money system” .

    Reference: Heyneke, N. and M. Daya (2016). The Rise and Fall of the Eurodollar System. NEDBANK CIB.

    Figure. London Interbank Offered Rate (LIBOR)

    Source: http://finansteknik.blogspot.com/

Powered by
►
Necessary cookies enable essential site features like secure log-ins and consent preference adjustments. They do not store personal data.
None
►
Functional cookies support features like content sharing on social media, collecting feedback, and enabling third-party tools.
None
►
Analytical cookies track visitor interactions, providing insights on metrics like visitor count, bounce rate, and traffic sources.
None
►
Advertisement cookies deliver personalized ads based on your previous visits and analyze the effectiveness of ad campaigns.
None
Powered by