China lets yuan break 7-per-dollar level for first time in over a decade
reuters.com
reuters.com
- first order effect: Yuan gets cheaper, meaning non-Chinese can buy more Yuan per dollar or unit of their currency
- second order effect: non-Chinese can buy more units of Chinese goods, making Chinese exports more competitive.
- second order effect: Chinese can buy less non-chinese goods per Yuan, weakening the ability of China to import items, but potentially strengthening the domestic market.
I imagine this will also create some amount of inflation.
An interesting technicality is that Chinese currency trades in two separate, mainly correlated markets. The onshore market (CNY) is regulated in a very tight band by the central bank, the offshore market (CNH) is much less controlled and trades in Hong Kong.
See https://www.google.com/search?q=cny+vs+cnh for the linkage.
The main negative effect is capital flight. If the yuan is devalued, ceteris paribus, an investor holding yuan would prefer to hold anything else. For example, "in 2015, China ...[devalued] the yuan 2%...[and had to burn] through $1 trillion in foreign exchange reserves to steady it" [1][2].
This time might be different, given China's tightened capital controls. But never underestimate peoples' creativity when it comes to moving their money.
[1] https://uk.reuters.com/article/uk-china-markets/china-lets-y...
[3] https://www.bloomberg.com/news/articles/2016-01-25/china-cap...
If you didn't sell your CNY at yesterday's price, why would you want to sell at today's (lower) price?
Minorly, because tomorrow's price might be lower. Majorly, because even taking into account the price drop, the present value of the currency-swapped yield on investments in a foreign currency are greater than those prospects at home.
That is an economic argument over something that seems to be a political valuation though.
That doesn't make sense. Holding a currency that gets devalued (and you believe it will be devalued further in the future) doesn't benefit from an improvement in the underlying economy. I.e. if I own 100 yuan, which buys about 14.25 dollars, if the currency is devalued so that in one year it only buys 10 dollars, even if that devaluation caused Chinese exporters to do great, I still would have done much better if I switched over to dollars originally. Currency doesn't pay a dividend.
Yesterday people in America were buying TV's from people in China. Let's say the price of a given TV was $140.
Now that the CNY/CNH is 'lower' (in the sense that you now need more than 7 CNH to buy $1), the price of those TVs just fell.
Now maybe the price of the TV's at $140 was in some contract, but the next time the contract comes up for review, the lower CNY reflects the fact that someone in China will accept 'less' for their TV than they were yesterday.
Extend this logic from a 1% move to a 20%.
As prices fall, maybe people start buying more of their TVs from China than South Korea, cause relative to the price of TVs from SK, the Chinese TVs are now a 20% discount.
~~~
Now, whether a falling FX makes for greater or lesser demand for Chinese financial assets, that's a different story. Would expect this to prompt capital flight.
~~~
And finally, yes, currency does pay a dividend. Just usually in the form of a different interest rate. So for 'lending' to a developing currency (in the form of buying a financial instrument or holding a bank account), you generally earn the local interest rate.
When capital deems that country as more risky, then that is reflected in the yield of short term interest rates. Were you to lend to Brazil, you might want 1,2 or even 5% more than you get for lending to JP Morgan or the US Govt.
Now, the fact that this 'interest rate spread' doesn't really exist vis-a-vis China, well that's the whole issue at stake. If interest rates in China are too low, then you would expect people to want to exchange their CNY for USD, since why not put it in dollars if it doesn't cost you much. Again, hence capital controls to protect against capital flight.
Macro folks call it the 'trilemma' and we're seeing a real time experiment in it, on a massive scale, right here.
My greater point was that exchange rates tend to be self regulating (in this situation), you'd expect it to return to mean rather than get stuck in a feed back loop. This is China though so I have no idea how much they need to heed economic reality.
Once the 7 line is crossed, owners are more likely to seek diversification through getting out of CNY and into USD/Gold.
Some of that downward pressure on the FX is likely good for demand in China (hence Trump saying they are doing it competitively) but it's also bad for liquidity in China (to the degree people start to price in further devaluations and capital flight kicks up again).
That's the balancing act the PBOC is trying to manage.
Thusfar they've done a pretty good job balancing, though it remains to be seen how the end game looks.
I don't understand your second point. Perhaps you could give a simple illustration?
Not necessarily. The decision of individuals to allocate in a particular manner can be thought of as a continuous function (IIRC this is called an indifference curve). In this case, the individual’s preferences (given by this curve) remain constant. As the relative prices of goods (currency being one) adjust, the composition of the preferred basket also adjusts. This is consistent with ceteris paribus. If an individual’s preferences were assumed to change, then the assumption would be violated.
> A devaluation today doesn't on its own provide information about future moves.
In general terms, people cite ‘momentum’ as a trading factor. A change in price today may continue tomorrow. If you consider the feedback loops that occur as something appreciates or depreciates, it may explain why momentum can be observed.
In more concrete terms, China has very deliberately kept its currency from devaluing below this level against the dollar for quite some time. The country has attempted to undermine short positions against the currency by doing things like adjusting fixings and overnight rates massively against the shorts for a brief period. Given that China is now allowing this devaluation to occur, it signals that the nation has a new exchange target in mind, presumably lower than the previous one.
Also 'all else being same' assumptions are just an explanatory tools for showing effect of basic economic principles (like supply/demand) within economy, not something to be taken too rigidly. There's no such thing as 'all else being same' in reality.
Chinese could also convert $50k a year for their own needs without having to justify it. (Foreigners could convert however much they made), so the controls were pretty reasonable at that time, not sure how it is now.
Rule of thumb in finance. When a system that looks stable assuming rational actors has a history of going haywire, the answer is usually leverage.
Devaluations spin out of control because of foreign-currency borrowing. Dollar debtors paid in yuan become forced sellers of assets and yuan amidst devaluation. (Their interest payments, in yuan, go up. Their revenues, in yuan, do not.) This panicked selling further devalues the currency, which leads to more panicked selling. This is a currency crisis.
When a government communicates FX boundaries, borrowers see a risk limit. They might hedge against currency moves up to that limit. Or keep enough dollars on hand (via cash or credit lines) to absorb pain up to that limit. Either way, when that limit is breached, they bleed. This feedback mechanism is commonly known, which turns breached limits into a self-fulfilling prophecy.
Confidence is tricky.
7 was considered a line in the sand that the government wouldn’t cross. Now that they crossed it, no one knows where the line in the sand is.
Will (foreign) holders of Yuan just shrug or will it lead to more caution, do they have a choice?
AUDUSD dropped almost 40% since 2011 and it is keep doing down, according to your theory, there should be any investor holding AUD.
> Overall, using standard economic methods, we find that the full incidence of the tariff falls on domestic consumers, with a reduction in U.S. real income of $1.4 billion per month by the end of 2018
> We find that the U.S. tariffs were almost completely passed through into U.S. domestic prices
This makes sense because we also see a significant reduction in import volume from of the goods being taxed, so it implies producers are finding alternate suppliers to avoid the China-specific tariffs at close to the China-supplier price.
The trick is there. It's possible to have China paying for all the tariffs or the other way around. It's probably going to be more complex though: Different products, currency fluctuations and possible rise of other markets.
Here's the deal:
The Chinese economy became investment-driven instead of export-driven following the Great Financial Crisis. Exports are less important to GDP than real estate construction and infrastructure development (subways, high speed rail, bridges, etc).
In terms of exports, Europe is the biggest trading partner, not the US. The US is number 2.
The Chinese economy has a big problem: the government can drive GDP as much as it wants via state-driven investment and debt, but much of that is malinvestment and the debt cannot be self-funded. So there is and has been a large debt problem. This is why the Chinese economy has been slowing and the government has not found a politically acceptable way to tackle the problem.
The US trade war is basically kicking the Chinese economy while it's already down, but it's not the key source of the problems here.
The US as a foil works, but Chinese internal propaganda also talks about their strength and independence... if there is a serious crisis that hits the general populations, it's going to naturally raise questions that "If Xi and Co. made us so strong ... how is it US sanctions alone are to blame for this?"
Obviously there are options there but just from the outside looking in there seems to be a lot of pseudo "trust in Xi, he makes us strong" propaganda that would suddenly become problematic.
I'm not sure I would describe it that way. There's a real lack of visibility in China I think.
How else are you going to politically sell deleveraging? Nationalism ("made in america" stickers) weren't effective in the past. I do not believe it's going to be effective in steering capitalism now.
That all said, there was some news the other day that most of the farm bailout has gone to big agricultural firms, so there's that...
Exports have stopped mattering several years ago. Manufacturing is increasingly being moved to Viet Nam, India, and Africa. Countries with cheaper labour costs and that don't steal your IP and lock you out of their domestic market as part of the manufacturing deal.
You forgot the ghost cities, the buildings that crumble before they are ever populated, and the roads that fall apart within a year of being built. The backbone of the Chinese realestate economy.
The chinese real-estate investment bubble is a bomb and the trade war is rapidly counting the timer down to 0. Is it a bubble? Yes it is, the Chinese government has had to put in multiple controls over the last 5 years to slow its growth and try to prevent it from bursting[1]. They're in a difficult position. Letting it keep growing will guarantee it bursts. Stopping it entirely will cease only source of the economic growth that's kept the population placated with the authoritative government.
The more wealthy and smarter Chinese have been investing overseas. That investment has fallen exponentially since the start of the trade war[2]. This bubble isn't going to hold up for more than 2 more years, assuming the trade war continues. And if it bursts, it'll hit the world economy pretty hard.
Recently the Chinese government has also put in tight controls on who can move money out of the country and how much. This was in response to everyone trying to move all their assets overseas as the trade war ramped up. They're even going after party members now[3].
tl;dr: China's economy is large, but most of it is a house of cards built on a bluff. That bluff has been called during a downturn that the CCP didn't know how to address in the first place. Anyone with the means to do so is folding, cashing out, and leaving the country or at least sending their children overseas[4].
[1] https://www.scmp.com/property/article/2080470/more-mainland-...
[2] https://www.abc.net.au/news/2019-04-08/chinese-investment-in...
[3] https://www.scmp.com/economy/china-economy/article/2167731/d...
[4] https://www.cnbc.com/2018/07/05/more-than-a-third-of-chinese...
I’ve been around the world enough to see this first hand. Empty brand new offices in Malaysia, Taiwan, Indonesia. Big apartment investments in small cities in USA and Europe. Lots of both in the southern half of Africa.
Perhaps the most interesting were the giant empty office buildings in Asia. Brand new, but seemingly falling apart, elevator shafts open with wires hangout of control panel locations. Ready to fix up for the right client, but I wonder who that is and when they are coming?
Asset valuations are not in line with reality.
The usual reaction I've seen when it is acknowledged (even if generally) is to note that it is "unhelpful" to talk about it.
Needless to say, the ability to issue more currency without anyone knowing you’ve done so (to increase/maintain domestic spending without the unwanted side-effects of inflation, for example) would be a very useful tool in any trade war.
M1 is always an estimate for every country on earth because you can't just take a snapshot of every bank's ledger all at the same moment and expect all the money to be there. You lack the necessary time granularity and there's a lot of gray areas like money mid-transfer between banks (missing from one, not yet written in the other), money in a van on its way to being destroyed, money in a van from the mint to a bank, bankruptcy proceedings, etc. To work around that, central banks ask retail and commercial banks to provide monthly balance sheets to prove they are stable, and base estimates off that. The IMF/World Bank do something similar with central banks that are members.
The good news is that you can find M1 estimates easily from relatively authoritative sources[0] that are good about citing their sources.
Follow-up question: does M1 include funds that are digitally issued from a central to a private bank, such as loans from the Fed to (for example) Wells Fargo? If so, are these funds considered fungible for purposes of digital transfer, such as via the SWIFT Network, or does each dollar / unit of currency have some notion of a traceable serial number as for physical bills?
I guess what I'm asking is less a finance question, and more a software question. If a bank in China (or the U.S., or anywhere) sends a SWIFT message of deposit to another bank, to what extent can the recipient verify the chain of trust in the funds' existence all the way back to the central issuing authority? If they cannot, it would seem that any private bank could de facto "print money" central bank-style by issuing fraudulent SWIFT requests. Perhaps they'd get caught, or maybe not, if they colluded with the relevant authorities.
Money has always been fungible, even nonfiat money. The second you have lenders in society and allow them to back loans using deposits, they effectively create money. The ratio of loans to deposits is called the cash reserve ratio, and it's pretty heavily regulated.
As for the trust question, the answer is in your question. Swift and other interbank settlement systems are independent (or co-owner) organizations that require a massive security deposit to explicitly handle the situation where a bank says "transfer 1000 to A with account with us from account B in your bank" where the transfer wasn't backed or authorized or anything like that. It's important to note that there are both pull and push systems. ACH is an example of a system that can pull. All of this is because banks don't trust each other especially if they aren't beholden to the same regulatory authority.
Money supply is always estimated. Modern monetary systems don't have a single person with a monopoly on creating money. The central bank "prints" a lot money, but so do private banks.
(Some systems have a tighter handle on money supply than others. But the measure is always an estimate.)
Yes, they do. A dollar created by JPMorgan Chase out of a loan wires exactly the same as a dollar created by the Federal Reserve out of purchasing a Treasury. (They both look exactly the same in your bank account and withdraw exactly the same as cash.)
Money supply is fascinatingly complex [1].
The goal of the Central Bank it's to control the interest rate, not the quantity of money. If there are not enough reserves in the inter-bank market, and the Central Bank refuses to supply them, the interest rate will go up.
So, if the Central Bank want to control the interest rate, it can't control the quantity of money and vice versa.
Modern Central Banks target the interest rate, not the quantity of money. The quantity of money in the economy it's automatically regulated by the level of economic activity.
"The central bank influences interest rates by expanding or contracting the monetary base, which consists of currency in circulation and banks' reserves on deposit at the central bank"
If you don't feel that quote clarifies feel free to read the rest of the section on monetary policy instruments.
In other words, if they target the interest rate they can't control the monetary base, so, Central Banks don't control the quantity of money in the economy.
If they choose to target the quantity of money in the economy, the tool that they have to use is the interest rate. So, they would lost control over the interest rate.
Modern central banks target the interest rate: they sacrifice control over the monetary base. The central bank don't decide the quantity of money in the economy, they decide the interest rate.
The implication is that they have to cover any necessary reserves by the private banks if they want to keep the interest rate in its target. So, yes, private banks create money when they lend and destroy money when the money is returned. And that's OK because that means that the quantity of money adapts to the activity of the economy.
This is correct. (The Fed has other tools beside open market operations, however, including directly manipulating rates on reserves and the discount rate.) But monetary base != money supply. The Fed manipulates rates to effect changes on the money supply.
Yes, if the money created is in the end kept in the system as a deposit it enables new loans (but it is not necessarily so if the money goes to someone that uses it to cancel a loan of their own, for example).
And due to the fractional reserve requirement the quantity of money cannot be increased without limit by commercial banks. That’s just a mathematical reality, notwithstanding the fact that it’s not usually a binding constraint.
>> they don't have the right to print money the way a central bank does.
> Yes, they do.
The feedback loop is the point, and it remains.
The private bank is forced to search for a quantity of reserves proportional to the money it has created, but it does it a posteriori. The credit department only responsibility it's checking if loaning you money is a good business.
For really big transactions, it becomes obvious. If I borrow $1 trillion from a bank, and immediately transfer it out, the bank can't get that money a posteriori. It can't transfer more than it has. It needs to borrow the entire sum, plus the reserve cushion, from someone else - other banks, depositors, or the Fed.
To be clear, I am in no way denying that bank lending increases the money supply. The contrast I'm drawing is with the Fed itself, which really can lend $1 trillion without getting it from anyone else.
If you move your loaned $1 trillion to another bank, your bank will have to find the reserves from other banks or from the Fed.
If it find it in other banks, no new reserves have been added, so, certainly, new money is in the system without the central bank doing nothing.
If it don't find the reserves in other banks at a good price, it will have to ask it to the Central Bank.
Now, the Central Bank have two options, it can give the reserves to the bank or it can refuse. If it refuse the private bank have to get the reserves in the inter-banks system. It have to. Otherwise it would be breaking the law.
So, it will be willing to pay anything necesary for the reserves. That will create additional demand in the reserves, and that mean that the interest rate will go up.
If the central bank wants to keep the interest rate in its target range it has to (it has not other option) to give the reserves to the bank.
Ergo, the central bank can choose the quantity of money in the system or the interest rate, but not both at the same time.
Modern central banks target the interest rate. Ergo, all this quantity of money thing is nonsense.
My own household experience with money and all analogies failed me when I first started thinking about these things. It only clicked once I started drawing up balance sheets.
As for the giant loan and transfer, I think that might be cleared soon-ish and only settled, with an interbank or fed loan if needed, at a later point in time after netting with other transfers.
The biggest difference between bond issuers is that greater trust leads to lower interest rates and thus cheaper borrowing. For example, the US government sells bonds with lower interest rates than any company - buyers demand more return for a corporate bond, because a corporation is more likely to go bust.
For simplification, there are two kid of moneys, the 'government money' and the 'lending money' (my terminology).
Government money would be: cash and reserves.
Reserves come from two sources (both are the government) the Central Bank and the treasure. So, when the treasure spend in the economy is creating government money. Also, when the central bank 'give' reserves to the private banks is creating money. When the govenrment tax is destroying money and when the Central Bank retire reserves of the system is destroying money.
The 'lending money' is created by the private banks when lending, but it disappears when the money is payed back. This is a different kind of money, a less 'real' money if you want.
You can find more information in many places. For instance:
https://monetary.org/wp-content/uploads/2016/03/money-creati...
Your friend has no money, but needs some.
You lend him your dollar.
Have you created money?
The IOU is an account balance. Have I created money?
Technically speaking, yes! (Neat, huh?)
If the IOU is accepted as currency, that is. You have rights to the original dollar and the borrower has rights to the IOU. Practically speaking, however, you haven't created money because nobody treats your IOU as money.
(Side note: this isn't a stupid question and doesn't deserve to be downvoted.)
Voila, new money!
From the Bank of England, banks are not intermediaries of loanable funds:
https://www.bankofengland.co.uk/working-paper/2015/banks-are...
The more details are given, the less interesting the special powers of commercial banks seem to be: not only is the amount of money that they can create limited to some multiple of the "real money" base, but they don't even lend that much out because it's not profitable.
The monetary base (physical currency plus banks deposits at the Fed) is currently $3.3tn.
M1 (circulating cash plus on demand deposits) is $3.9tn (the money multiplier is slightly above 1, but it was below 1 for most of this decade!).
M2 (including also savings accounts) is $14.9tn. M2/MB is 4.5, it has ranged between 3 and 5 over the last 10 years. It was between 8 and 12 in the four decades before 2008.
Central banks do have that special power, they can literally create money out of nothing. A normal bank can lend out a $, but they need to have taken a $ deposit, and it stays on the banks balance sheet.
Normal banks special powers are turning risky illiquid debt and making it appear risk free and liquid to depositors.
In a bank, Person A gives the bank a dollar, the bank loans out (let’s say the full dollar for simplicity) and, some steps later, the dollar is out back into the bank (let’s say person B does this for simplicity).
Both A and B have title to a dollar, so yes, there’s more than one.
The bank created it by creating a liability for themselves. This is ok because long term the loaning of the dollar should create more than a dollar in value, so the liability will be covered.
Banks don't lend out balances. "Banks lend out balances" is just an analogy. (It was truer under the gold standard.)
Banks create money through lending and destroy money via write-offs. Periodically (in the U.S., at the end of the day) banks count up what they owe and what they're owed and make sure the ratio is legal. If not, they borrow (from each other or from the Fed) to make up the difference.
(For monetary purposes, savings accounts are checking accounts. Banks don't segregate savings from their balance sheets. Balances in savings account can be withdrawn just as easily as those in checking accounts.)
There are different definitions of money and saving accounts are included in M2 (“money and close substitutes”) but not in M1.
What about time deposits? For short maturities they are included in M3. And what about longer term depositss? Are banks creating money when they lend those out?
You're hanging on to the "banks lend out deposits" mental model. Stop that. The Bank of England has an accessible write-up on this: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-....
Loans create deposits. Whether those deposits then end up in a checking account through a payroll service or a vendor's savings account through a payment for goods and then transfer is irrelevant.
A bank making a loan is trading one asset, cash, for another asset, a loan. If that's "creating money", then doesn't that imply that a loan is "money" and cash is not "money"?
Down the line you suggested depositing money creates money because now you and the bank have a dollar. That’s not true, because the bank doesn’t have title to the dollar.
(And can deposit it at the federal reserve, if somehow you don’t think actual money is good enough to qualify as money.)
Custody isn’t title.
The deposit is their liability (obviously they can't spend it). The dollar is their asset. When you deposit the money into a bank that dollar is not yours anymore, the bank is not keeping it in custody for you.
When a loan is taken, it is usually not taken just to sit in a bank account, it is to be spent. When that happens (by cash withdraw or transfer to a different bank), a bank must release/transfer base money, which it can get from cash deposits, incoming transfers or in exchange for some other assets.
Therefore, although banks create M1 money by lending, they are limited in practice by necessity to keep balance of base money. So it is more a distributed/emergent behavior, where each bank ability to create M1 money is limited by its market share and the rate of money production by other banks.
The money lent does not go away when the check or whatever is cashed at another bank. The reserves follows the check. We're just working with more balance sheets now.
As long as the loan asset remains in the books, it earns interest which will add to bank equity.
We can keep bringing up details, but the basics remain the same. Bank lending creates money.
In fact banks also create money when they take cash deposits (and destroy money when they hand out cash).
If I deposit a $100 bill into a bank we’re increasing the money supply because I have $100 and so does the bank (until it spends it, trades it for a non-money asset or lends it out).
I think that the difference is important, because if one believes that a commercial bank can print fiat money the way a central bank does, then the idea of a bank run or bank collapse looks incomprehensible.
That actually seems like the sort of hand-wave that the accounting industry exists for the sole purpose of opposing. There are a small number of groups licensed to create money by lending, and it is likely they have very accurate records that are to be made available to financial authorities.
It may be that the central banks don't bother to use their power to get an accurate figure, but there isn't much of a question that the quantity of money emitted by the system is a precisely known figure. And most of it only exists electronically.
Every bank is authorized to create money through lending. These range from large, domestic institutions with modern accounting systems to tiny shops in Italy or Greece overseen by an ECB with dollar liquidity swap lines [1]. The estimates are pretty good. But they must always be remembered to be estimates.
[1] https://www.federalreserve.gov/monetarypolicy/bst_liquiditys...
"If you borrow £100 from the bank, and it credits your account with the amount, ‘new money’ has been created. It didn’t exist until it was credited to your account.
This also means as you pay off the loan, the electronic money your bank created is 'deleted' – it no longer exists. You haven’t got richer or poorer. You might have less money in your bank account but your debts have gone down too. So essentially, banks create money, not wealth.
Banks create around 80% of money in the economy as electronic deposits in this way. In comparison, banknotes and coins only make up three percent. Finally, most banks have accounts with us at the Bank of England, allowing them to transfer money back and forth. This is called electronic central bank money, or reserves."
TL; DR Through borrowing. The process is regulated, but not centrally controlled.
https://www.bankofengland.co.uk/knowledgebank/how-is-money-c...
Is that not backwards?
That £100 that is loaned out, hasn't appeared from the ether, its my £100 that I deposited. In some real sense I no longer have £100, I have a promise to pay me £100. So I have £100 in wealth, you have £100 cash, which is a subset of wealth. The existence of bank runs would seem to prove that I no longer have £100 cash, and that banks can't create money.
Further, the whole idea of capitalism and banking is that people who need money can borrow it to create things that generate wealth. Banks are the conduits to get money from the cash rich, to those who can best use it. If that £100 loan ends up making a better widget, has not the bank in some way generated wealth?
No, the Bank or England is not confused about how central banking works.
TL; DR Banks don’t lend out deposits. Deposits are created through loans. Reserve requirements limit the rate of loan creation after the fact. Runs happen when depositors stop trusting the numbers created by a specific bank because they don’t think the bank will meet its reserve requirement at the end of the day.
I don't think that makes any sense as a categorical statement.
If a bank is short of reserves, but is solvent, then there's no need to panic. Or if it's insolvent, but you know the FDIC will make you whole. The case where you rationally try to get your money out before other people is when you either know that there will not be enough in total assets for everyone in the long run, or you cannot afford to wait for a liquidity crisis to be over.
"how central banking works"
I thought we were talking about normal banks???
It's not. It's hard to believe at first but the bank just write +£100 in your account and that's essentially it. The bank can loan £100 before you deposit them. The £100 you deposited were loaned to your employer by another bank.
The deposits don't fuel the loans, the loans fuel the deposits.
"The fractional reserve theory where the money supply is limited by the money multiplier has come under increased criticism since the financial crisis of 2007–2008. It has been observed that the bank reserves are not a limiting factor because the central banks supply more reserves than necessary and because banks have been able to build up additional reserves when they were needed. Many economists and bankers now realize that the amount of money in circulation is limited only by the demand for loans, not by reserve requirements."
https://en.m.wikipedia.org/wiki/Money_creation
If so, isnt it more the case that that deposit had just been waiting around waiting for someone wanting credit.
If you are literally saying the money comes from the ether, why even let people make deposits at all. If you can create money you can pay 0% interest on it, rather than the 1/2/3% that I'd demand, and you wouldn't have to worry about bank runs either.
From what I can gather its more of a model, than a literal truth. If you apply for a loan from $bankx then they will tell your $banky to increase your balance by $100. That is all electronic and basically an article of faith between the banks, no gold bullion gets transferred or whatever. Ultimately it does need to be grounded in reality somewhere. I can't set up $bankz and just start making $100 trillion worth of loans backed with nothing but a banking licence.
The US debases its currency, to pay for welfare and social services and to pay Pakistan for the privilege of fighting its clients in Afghanistan.
China debases its currency but then uses the resulting funds to build factories in Shenzhen and coal mines in Inner Mongolia.
That said, labeling them would be a political act, not necessarily one based on objective evidence. In the current climate, it might happen.
And to answer your question: I at least do not know.
I was reading some background, and someone mentioned an estimate of 10 per dollar to be a really true free-floating variable...
Who are the losers when a government prints money?
Those with a lot of money invested in the domestic market can do ok if the rise in imports offsets it.