A Note on Money Creation in Emerging Market Economies

23 Pages Posted: 18 Mar 2016  

Alexey A. Ponomarenko

Central Bank of Russia

Date Written: March 15, 2016


This paper discusses the money creation mechanisms in emerging markets with special focus on external transactions. We argue that one should not rule out the possibility that fluctuations in the loans-to-deposits and non-core liabilities ratios are driven by the banks. We also argue that, under a flexible exchange rate regime in which the central bank is not trying to accumulate foreign reserves, external transactions are unlikely to contribute significantly to money growth. To make our argument, we analyze a historical episode of these flows in Korea and Russia and conduct a canonical correlation analysis for a cross-section of emerging market economies.

Keywords: Money supply, non-core liabilities, loans-to-deposits ratio, emerging markets

JEL Classification: E51, F30, G21

Suggested Citation

Ponomarenko, Alexey A., A Note on Money Creation in Emerging Market Economies (March 15, 2016). BOFIT Discussion Paper No. 4/2016. Available at SSRN: https://ssrn.com/abstract=2749576

Alexey A. Ponomarenko (Contact Author)

Central Bank of Russia ( email )

12 Neglinnaya Street
Moscow, 107016

HOME PAGE: http://http.//www.cbr.ru

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