My Take on Econ

 In this blog I will be discussing: ·           How banks transfer money ·           How banks make a profit ·           How the banks adhere to liquidity and solvency constrains So, the hierarchy of money is important because of its implication. Gold can buy you currency and vice versa, currency can buy you credit (sometimes securities, but the value of securities makes it impractical to use currency), credit buys securities. Therefore, corporate banks want to hold as much credit as they can. What do I mean by credit, in terms of banks? Credit in banking refers to the deposits of banks in other banks. (This is a complicated process, but I will try to simplify it with a scenario) Let’s assume that I deposit money in Bank A, and you have your money in Bank B. I want to transfer you £10,000, so I go on the banking app, and transfer you the money. This...

I have written a blog on a similar topic to this, my “History of Banking” blog, in all fairness, I will admit that the blog was somewhat dull. But since then, I have begun a course on “The Economics of Money and Banking” and have found a new appreciation for the intricacies that are in the world of financial intermediaries. And believed it wise to share the knowledge that I have gained from the course with the readers of my blog. Hierarchy of money I will begin with the hierarchy of money. What does this mean? In short, not all stores of value are the same. For example, you cannot use an M&S gift card to buy a Microsoft Xbox. The hierarchy goes as such: gold, currency, deposits (i.e., in a bank), securities [1] . As shown below [2] .  This doesn’t apply perfectly in today’s world since international trade occurs in USD and not in gold, since it is the world reserve currency. Yet, before the USD was the world reserve currency, international trade occurred in gold. And the res...