How does the Central Bank and the Treasury work ?
Could somebody who really understands the relationship between these two could explain to me in really simple way who is the one who prints the money? Where do they borrow it from?
Is the Bank of England or the Federal Reserve the government?
Who does the treasury borrow “money” from to print more money?
I dont understand this. They are asking permission to print more of their own money from the central bank? How does the Federal Reserve or the Bank of England control the treasury? thanks.
September 3rd, 2010 at 9:30 am
Generally The Treasury is a government institution, which looks after the country’s budget. It also decides when new bank notes/ coins are to be manufactured. This is a delicate balancing act, because printing too much money will lead to inflation, look at Zimbabwe.
But remember that “new money” is created any time that you walk into a bank to get a loan. When economists talk about “money” they have several groups, one being cash, and several groups that reduce in liquidity.
The Central Bank is an “independent” institution regulating the banks and banking health in a country, but typically also charged with containing inflation, and printing money.
Nobody “borrows” from anybody when money is printed, it is created, so to speak, out of thin air. That is why it is so dangerous in inflation terms to print money – it devalues currency already in circulation.
In the old days of the Gold Standard things worked a little differently, the reserve bank, Bank of England promised to swap your piece of paper for the equivalent in gold. So the paper was a promise that somebody was keeping something of “real” value on your behalf. (Before that, you had gold coins, and you carried the gold with you all the time.)
Now we all just agree that the pieces of paper are worth something, and exchange them amongst ourselves.
Sorry, if I understood it better myself, I could have explained it more simply.