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Banks' Contribution to Government Debts

Author

Listed:
  • Rohwer, Götz
  • Behr*, Andreas

Abstract

The paper argues that an important contribution of private banks to the expansion of government debts, and thereby to the increase in the money supply, is based on their being mediators of government expenditures. In order to develop the argument the paper distinguishes between two money circuits: one, which includes the government, starts from the central bank, and another one, which includes the final recipients of government expenditures, starts from private banks and is based on their deposit money. Presupposing then an institutional setting in which only private banks are permitted to initially purchase government bonds on the primary market, the paper shows that private banks can finance these purchases with their own deposit money.

Suggested Citation

  • Rohwer, Götz & Behr*, Andreas, 2020. "Banks' Contribution to Government Debts," MPRA Paper 100935, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:100935
    as

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    File URL: https://mpra.ub.uni-muenchen.de/100935/1/MPRA_paper_100935.pdf
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    References listed on IDEAS

    as
    1. Werner, Richard A., 2014. "How do banks create money, and why can other firms not do the same? An explanation for the coexistence of lending and deposit-taking," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 71-77.
    2. Jakab, Zoltan & Kumhof, Michael, 2018. "Banks are not intermediaries of loanable funds — facts, theory and evidence," Bank of England working papers 761, Bank of England, revised 17 Jan 2020.
    3. Eric Tymoigne & L. Randall Wray, 2013. "Modern Money Theory 101: A Reply to Critics," Economics Working Paper Archive wp_778, Levy Economics Institute.
    4. McLeay, Michael & Radia, Amar & Thomas, Ryland, 2014. "Money creation in the modern economy," Bank of England Quarterly Bulletin, Bank of England, vol. 54(1), pages 14-27.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Government debts; taxes; banks; money circuits;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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