Money issuance and its types
Money issuance is the release of additional funds. This includes not only banknotes and coins, but also loan bonds, shares, and bonds.
Types of issuance
Issuance is carried out by government agencies or authorized services. There are several types of issuance:
1. Cash issuance of banknotes and coins. The Central Bank, the country’s main regulator, decides whether additional issuance is necessary. New funds are distributed among commercial financial institutions. These funds then end up in ATMs and cash registers.
2. Non-cash (credit) issuance: The central bank increases the amount of funds in accounts. This money has no physical equivalent and is used for lending.
3. Primary issuance: The central bank introduces new money into the economy. This can be done by purchasing government bonds with newly issued funds.
4. Secondary issuance, or bank multiplication, occurs when banks lend out these funds. Banks use non-cash money for lending and investment, thereby increasing the amount of funds in circulation.
Features of issuance
Each type has its characteristics. Cash issuance is strictly controlled and carried out according to demand and economic trends. An excess of cash in the country significantly increases the risk of inflation.
Non-cash issuance plays a key role in the growth of the money supply. These funds are secured by loan agreements.
Uncontrolled primary issuance can lead to hyperinflation, so the process is strictly controlled.
There are other forms of money issuance. One example is inflationary issuance. In this case, new money does not have economic backing. This type of issuance causes rapid price growth. Another form is secured issuance. In this case, money is issued against assets, such as gold, foreign currency, or securities.
Reasons for issuance
Economic development requires an increase in the money supply. Greater production and trade create a higher demand for means of payment. A shortage of money leads to a liquidity deficit and slows down the economy.
Another reason for issuing money is to cover the budget deficit. In this case, the government issues and sells government bonds on the market. Issuance may also be related to credit and interest rate policy. For instance, an increase in the money supply lowers interest rates and stimulates lending.
An increase in the money supply is also used to repay debt obligations. However, this approach carries a high inflation risk and can lead to a weakening of the local currency.
Any issuance requires economic justification and strict control. Without these measures in place, the issuance of money can lead to inflation, price increases, and other negative consequences.
