019. the Theoretical Foundation of Money

Overview of the currency system

The monetary system is divided into three links: the central bank, the commercial bank, and the market. Each link has its own tasks, but the rules are the same.

The Role of Markets in the Monetary System

Currency and items are opportunity costs, and currency is a check of prices.

1. Item price equation: 30% capital = 20% sales (production)/T. This equation is the basis of interest rate theory and price theory.

2. MV=PT, this is the relationship between currency and items. P=M, T=V. Currency is a comprehensive representative of various types of prices.

3. Exchange rate, P=MV/T

Multiple currencies are no different from one currency. Exchange rates are market matters and can be automatically balanced. M and P are the same, and are opportunity cost.

V is the same as T, and my idea is to gradually shrink from multiples to be the same. There is no difference between currency trading and object trading.

4. How to observe economic information?

Price data is a small concept in the economic system and requires currency.

Currencies have two attributes: interest rate and stock. First look at the one-year regularity, and then look at the coordination of interbank lending and long-term interest rates.

Low interest rates - investment is not profitable, production is not easy, capital outflow.

High interest rates - affect consumption, market decline, capital inflows.

M3 is the inventory that calculates the market turnover speed.

The growth rate of money stock is normal: M3>M2>M1>M0. For specific operations, reasoning is done based on the original intentions of several stocks.

The rapid growth of M2 reflects the rapid increase in wealth for the wealthy, and the high interest rate implies the same. The slow growth of M1 reflects the slow income growth for the poor. As for the rapid growth of M0, it depends on the situation of M1: if M1 grows slowly, it indicates rising prices. If M1 grows rapidly, it suggests increasing demand.

There is no difference between commercial banks and small vendors’ jobs, they earn money from moving around. The banking industry has a huge role in the economic system, converting spare money into wealth. Deepening—? The wealth created will continue to create more wealth. Deepening further, the harm of the theory of wealth redistribution - causing the value of money and the wealth created in the past will depreciate.

Functions of the central bank

The issuance of currencies is the function of the central bank, and interest rates are related to the reserve ratio, which control the economic gate. One-year fixed interest rate = 30% deposit reserve ratio/(1-reserve rate).

Conclusion: Integration of the Monetary System Links

In conclusion, an understanding of the theoretical foundation of money is critical to grasping how various components of the monetary system operate. The interaction between the market, commercial banks, and central banks is governed by similar principles and rules. Together, these links ensure that money flows efficiently throughout the economy, fostering growth and stability. By acknowledging the tasks and responsibilities inherent within each link, we can better appreciate the intricate design and functionality of our monetary system.