Unsourced material may be challenged and removed. Money issued by central banks is called base money, or reserves, while money issued money and credit pdf commercial banks or other intermediaries is termed broad money. The effect of monetary policy on the money supply is indicated by comparing these measurements on various dates.
407 trillion in January 2005, to 18. 136 trillion in January 2009. Purchases of these assets result in currency entering market circulation, while sales of these assets remove currency. Usually, open market operations are designed to target a specific short-term interest rate. In modern economies, relatively little of the supply of broad money is in physical currency. Governments or commercial banks may draw on these accounts to withdraw physical money from the central bank.
Commercial banks may also return soiled or spoiled currency to the central bank in exchange for new currency. Usually, a central bank will conduct open market operations by purchasing short-term government bonds or foreign currency. The central bank may buy long-term government bonds, company bonds, asset-backed securities, stocks, or even extend commercial loans. The intent is to stimulate the economy by increasing liquidity and promoting bank lending in cases when interest rates cannot be pushed any lower. In contemporary monetary systems, most money in circulation exists not as cash or coins created by the central bank, but as bank deposits.