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the national debt. Find out how much the debt is “to the penny” at this Treasury web site:For More DiscussionHow much cash do we really use? Have students keep a journal for a week tracking how much cash they spend and where they obtain it; i.e., how often do they use ATMs?How has the increased use of electronic money affected the multiplier? If the United States moves closer to a cashless society, how will that affect the Fed in its conduct of monetary policy?Instructor’s Manual t/a Cecchetti: Money, Banking, and Financial Markets241
Chapter 17The Central Bank Balance Sheet and the Money Supply Process Chapter OutlineI.The Central Bank’s Balance Sheet1.The central bank engages in numerous financial transactions, all of which cause changes in its balance sheet.2.Central banks publish their balance sheets regularly; the Fed and the ECB do so weekly. Publication is a crucial part of transparency.A.Assets1.The central bank’s balance sheet shows three basic assets: securities, foreign exchange reserves, and loans.2.Securities: the primary assets of most central banks; independent central banks determine the quantity of securities that they purchase. For the U.S. Federal Reserve, these are primarily U.S. Treasury securities.3.Foreign Exchange Reserves: the central bank’s and government’s balances of foreign currency and are held as bonds issued by foreign governments. These reserves are used in foreign exchange market interventions.4.Loansare extended to commercial banks. There are several kinds. Discount loans are the loans the Fed makes when commercial banks need short-term cash.5.Through its holdings of U.S. Treasury securities the Fed controls the federal funds rate and the availability of money and credit.B. Liabilities1.There are three major liabilities: currency, the government’s deposit account, and the deposit accounts of the commercial banks.2.The first two items represent the central bank in its role as the government’s bank, and the third shows it as the bankers’ bank.3.Currency: nearly all central banks have a monopoly on the issuance of currency, and currency is the principal liability of the Fed.4.Government’s account: the central bank provides the government with an account into which it deposits funds (primarily tax revenues) and from which it writes checks and makes electronic payments.5.Reserves: Commercial bank reserves consist of cash in the bank’s own vault and deposits at the Fed, which function like the commercial bank’s checking account.6.Central banks run their monetary policy operations through changes in banking system reserves.C.The Importance of Disclosure1.The balance sheet published by the central bank is probably the most important information that it makes public; it is an essential aspect of central bank transparency.