Just a question.?

Question

This has to do with economics. I'm just getting into the subject. How does money go into circulation? After it's printed by the mint, how does the money actually go into circulation and what are some of the after effects of it?

Answer 1

Do you mean how newly printed currency is literally introduced to regular people, or how money is created and destroyed by the Federal Reserve?

If you mean the first:

When money is deposited at a bank, it is counted and sent back to a central processing area (usually once a week... think armored cars).  The money is then sent back to the US Mint and inspected for wear.  If it is worn out, it is taken out of circulation and replaced with stacks of new bills.  Then the money is sent back to the armored car service, then back to the bank, then out to customers.

If you mean the second:

Money is not real.  If you add up all the money that is on deposit, is in circulation, and has been loaned out, the total vastly exceeds the amount of paper currency that exists.

The way that the government manipulates the amount of money in a system at a given time is usually through loans to banks.  In the US, this is controlled by the Federal Reserve.  They make "loans" to banks, who in turn loan out the money to regular borrowers like you and me.

The catch is that the bank only needs to keep a certain percentage of their liabilities in cash reserves.  This percentage is also set by the government.  So if the bank takes a $100 deposit, and the reserve requirement is 10% (as it is in the US), the bank can loan out $90 of that.  Then when that $90 is deposited at a second bank, that bank can lend out $81 of it.  The bank needs only to keep 10% of it.  China is one country that changes the reserve requirement as a policy tool.  The US tries to keep this rate steady in order to add stability to the financial system.

So to keep it somewhat basic, money is usually introduced to our system through loans to banks.  Another way that the government controls the money supply is by buying and selling its own debt (government bonds).  There are billions and billions of dollars worth of government bonds out there being traded at any given time.  These are owned by governments, companies, funds, and individuals.  When the government wants to add money to the system, they buy back their bonds.  Investors get cash in hand rather than their bonds.  When they want to remove money from the system, they sell more bonds.  This way they take in cash and basically put it in their bank so that it is out of circulation.

Monetary policy is used to fuel development and economic growth in the positive sense, and to fight inflation and economic stagnation in the negative.  By adding money to the system, the government is effectively lowering the cost of money (think supply and demand).  Money is easier to get.  You can think of the interest rates on loans as the "cost of money."  So low interest rates tend to spur people to borrow money and invest it.  This usually leads to economic growth.  Unfortunately, it can also lead to inflation, which is very bad.

When interest rates are high (aka the "cost of money" is high), people tend to borrow less.  This tends to slow down a hot economy, which governments sometimes want to do.  An economy that is growing too fast also tends to create inflation, which can destroy nearly every area of an economy.  It devalues people's savings and causes prices to rise (usually faster than people's income).  So clearly, monetary policy has a big effect on the economy and all of our lives.  Hope this helps!

Answer 2

well the us mints give brand spanken new bills and coins to banks around the nation then when the people withdraw money from the bank they get the new money then they use the money and it travels from business to business and eventually some business will deposite it and the bank will return the money to the mints where it is then recycled

Answer 3

the after effects are we have to slog our guts and sweat out for it 5 days a week in what seems like all hours!! at the end we get just 20p after tax and then u realise they have give ur job to a cheaoer polish worker and he will get 5p!!

Answer 4

you know how you buy something with cash. the shop stores put it into the bank and the bank replaces the old bill with new printed money from the mint.