How+to+Create+Money

The Bank of Canada is the only intuition within Canada with the authority to create the money supply. Some ways to create money include the printing of bank notes and/or the manufacturing of coins, bank lending, fraction reserve banking, and quantitative easing. Frictional reserve banking is a banking system which requires the commercial banks to keep only a portion of the money deposited with them as reserves. Only 4.8% of the money in Canada is cold hard cash. The reason being only that small percentage is because our main source of money today is held electronically rather than cash. We, the public influence the amount of money in the economy by withdrawing money, depositing, and spending it. However the commercial banks get to decide how much banks have to hold in cash called the target reserve ratio. In previous years banks had to keep a certain amount on hand, but now our target reserve ratio is zero. We can have it at zero because the Bank of Canada will lend a bank money if there is a bank run. A bank run is when numerous bank customers try to withdraw their bank deposits all at once and the bank’s reserves are not sufficient to cover the withdraws. Our banks no longer issue paper money because if every bank could print their own money it would be very difficult to control money supply. Checking accounts is where we put our hard earned money into, then when we make a purchase on our debit cards it comes off our account automatically. Bank lending creates money in a sense that when they borrow from each other cash flow is happening, person 1 deposits money in demand deposit, the bank then lends out a portion of the demand deposit which is deposited into person 2’s demand deposit, a portion of that deposit is then lended out as well and so on. Commercial banks are given a lower rate to borrow from each other in order to encourage borrowing from each other rather than borrow from the Bank of Canada. Quantitative easing increases the money supply by giving financial institutions capital in an effort to promote increased lending and liquidity. The Bank of Canada is the only institution allowed to print money because too much money will result in inflation, and too little money will result in unemployment. Resources: [] Principles for Macroeconomics, McGraw- Hill Ryerson, 2009
 * How to Create Money**