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Unformatted text preview: Evolution of Central Banks (10/7/2010) Econ 310-004 Definitions bankers bank institution whose liabilities are held by commercial banks as reserves clearinghouse association (CHA) institution where checks and banknotes drawn on member banks are cancelled against each other so that only net balances are payable correspondent banking services services provided to other banks (usually when small banks have deposits at large banks) monopoly of note issue permission for one bank to issue banknotes and prohibition on any other bank issuing banknotes regulator of commercial banks monitoring and policing of banks lender of last resort (LOLR) bank ready to insert high- powered money into the system in the event of an internal drain high-powered money money that can be held by commercial banks as reserves solvency assets > liabilities liquidity ability to pay debts as they become due fire sale sale of goods at extremely discounted prices, typically when the seller faces bankruptcy internal drain publics preference for high-powered money prompts redemption depleting banking system of reserves and forcing a sharp contraction monetary policy pursue macroeconomic goals through control of the monetary aggregate seigniorage profit that results from producing coins (difference between face value and metal value) bureaucracy does not answer to profit- seeking shareholders, so can pursue managers...
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This note was uploaded on 01/26/2011 for the course ECON 310 taught by Professor Staff during the Fall '08 term at George Mason.
- Fall '08