The Monetary Responsibilities of a Central Bank

13 Pages Posted: 31 Oct 2012

See all articles by Robert L. Hetzel

Robert L. Hetzel

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 1988

Abstract

In today’s world of paper money, money consists of currency created by the printing press and bank deposits created by the bookkeeping operations of bankers. What limits the ability of the printing presses and the pens of bankers to create money? The currency component of money is central bank money (dollar bills). The bank deposits component of money is backed by central bank money (bookkeeping entries at the central bank). It is the central bank’s monopoly of its own money that allows it to limit creation of the public’s money. In turn, limitation of central bank money and the public’s money limits the price level. The essence of central banking lies in the responsibility to limit the money stock in order to tie down the price level.

Suggested Citation

Hetzel, Robert L., The Monetary Responsibilities of a Central Bank (1988). FRB Richmond Economic Review, vol. 74, no. 5, September/October 1988, pp. 19-28, Available at SSRN: https://ssrn.com/abstract=2122461

Robert L. Hetzel (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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