If that belief changes, it can change very rapidly in a financial market, he process of financial contagion can take place in just minutes or seconds even. You can just move from being an apparently quite a stable robust economy, to being one that suddenly sentiment has turned against you, and you find that the markets are picking on you.
It's called seigniorage. Seigniorage: Profit made by a government by issuing currency. The difference between the face value of notes and coins, and their production costs.
When the Bank Of England creates a $10 note, it costs it about 3 or 4 pence to actually print that note and it sells it to a high street banks at face value, so for $10 and the profit, the difference between printing the note and actually selling it for $10 goes directly to the treasury.
So, in effect all the profit that we get on creating physical money, bank notes, goes to the Treasury, and it reduces how much taxes we have to pay.
Over the last 10 years, that's raised about ?18 billion. In 1948 notes and coins constituted 17% of the total money supply. This was one contributing factor in the government's ability to finance post-war reconstruction.
This included the establishment of the NHS.
In only 60 years notes and coins have shrunk to less than 3%. Prior to 1844, bank notes were created by private banks and the government did not profit from their creation.
Pre-industrialisation there was multiple forms of money co-existing, and so the rise of government-sponsored fiat money is a relatively recent phenomenon.
In the 1840s there was no law to stop banks from creating their own bank notes. So they used to issue paper notes as kind of a representative of what you had in the bank account.
Instead of you taking your heavy metal coins out of the bank and then going and paying somebody with them, you could get your paper which said how much money you had in the bank and you could give that to somebody.
So that's kind of high risk, compared to loaning your money to somebody with some collateral, with a house behind them, like a mortgage. So there's a simple incentive for banks to prefer putting money into housing than into a small business. Now that's a real problem if you widen that out across a whole economy, because it means there's an incentive to put money into speculative rather than productive investment. So again, we have to think about how we create a monetary system that is more balanced between those two kinds of speculative and productive investment.
Government contracts are signed on the basis of Federal Law No. 44. To fulfill this contract, special auctions are held, in which the company that offers goods or services at the lowest prices wins. But there is always a possibility that the winner will not be able to fulfill the customer's requirements for various reasons. Under such conditions, the customer will lose a lot of time and money, so he needs a guarantee, for which usually the participants in the process turn to a reliable and trusted bank. They should understand how to get a bank guarantee to secure a contract, how its value is determined, and also for what period it is provided. The use of this guarantee is mandatory for participants.
A trillion is 12 noughts so 100 trillion, if you want to imagine, is a 1 followed by 14 noughts. They believe this credit expansion will create a boom because there is now more money with which to make investments.
The problem is that now we're in this hybrid model where we have no control over how they spend the money, which creates our money, but also we're reliant on them to create our money. We'll be in debt pretty much for the rest of our lives, and the younger generations have it even worse than the older generations. I've just been reading a report from the United Nations Environment Programme, and they say we need $2 trillion a year. Can you imagine what two trillion is? It's a lot of money.
The settlement banks would then receive interest at base or policy rate for the central bank reserves they held. Since the crisis, settlement banks central reserves have shot up dramatically. Significance of central bank reserves. When bank customers transfer funds from their account to another person's account, a process called Intra-Day Clearing occurs.