-1

What was the first electronic creation of money?

There seems to be some confusion as to what I'm asking. I read about quantitative easing and as far as I can tell that's something different.

I'm not talking about fractional reserve banking or deficit banking either. Nor am I talking about inflation (printing currency is just one of several causes of inflation).

We all know that governments print currency then give/sell it out to banks or some organization somehow. The govt. can do the same thing electronically. That's what I'm talking about. When was the first time that happened?

  • 2
    What do you mean by is created electronically? There are two mechanism to increase borrowing: one is the Fed lending to the banks at a lower rate (so the bank asks for a loan to the Fed in order to have enough money in balance to lend to customers) and lowering the part of the deposits that the bank must have "at hand" and cannot lend (fractional reserve banking). Your question sounds more like the latter, but even in that there is no "currency is created" but a change of leverage (en.wikipedia.org/wiki/Leverage_(finance)) – SJuan76 Aug 29 '16 at 10:50
  • And of course, both of them happened way before communications were electronic (analogical telephone and telegraph are electrical, not electronic). – SJuan76 Aug 29 '16 at 10:51
  • 2
    Do you intend M1 or M2 (links: federalreserve.gov/faqs/money_12845.htm and lexicon.ft.com/Term?term=m0,-m1,-m2,-m3,-m4)? Do you count wiring money by telegraph (ie Western Union)? For that matter do you count Traveller's Cheques (ie invented by Thomas Cook)? – Pieter Geerkens Aug 29 '16 at 21:54
  • I would migrate this to the Economics SE site. This is recent enough to be "current events," not really "history." – Tom Au Aug 30 '16 at 21:29
  • 2
    I do support the question even if it is pretty recent history – CsBalazsHungary Aug 31 '16 at 8:04
1

There are a number of concepts confused here, and it isn't possible to answer the question precisely.

  1. Quantitative Easing - pioneered by the Bank of Japan circa 2007. This is the most probable answer to OP's question, but QE doesn't require electronic money or banks; the government can buy and sell bonds without a central bank, and can use those bonds to increase or decrease the money supply, so long as the government is comfortable with deficit spending.

  2. Deficit spending - government spending beyond assets & revenues, but not through inflation - This happens in every war when the government commands that economic activity take place without remuneration. Although the exact conditions can be argued, the traditional first example of this is D'Israeli's financing of the Suez Canal backed by the full faith & credit of the British government.

  3. Electronic money - This is a complex topic taught to every economic undergrad (and then gleefully forgotten by most of them at the first opportunity) - the dollars and cents (currency in circulation is only a tiny part of the monetary base MB. In the modern era the government should have little or no interaction with paper currency (with the exception of the Mint). All government accounts should be managed by Fractional Reserve Banking.

  4. Fractional Reserve Banking - the difference between currency and money. The money you put in the bank doesn't stay in the vault. Every dollar deposited is the basis of tens of dollars of loans - so "money is created".

  5. Inflation - where the government devalues the currency by printing more currency. This has a history reaching back as long as there have been coins. Inflation creates money (although electronic inflation is relatively recent). Inflation is the tax that nobody needs to vote for, and is the dirty little secret that goldbugs don't want anyone to talk about. Aside: "Inflation is always and everywhere a monetary phenomenon" Milton Friedman Discussion of inflation as a consequence of monetary/fiscal policy is outside the scope of this answer (and I'm not competent to do it tersely), but Friedman's quote is relevant to OP's question. (thanks to Mr. Geerkens for the reminder).

  • 1
    I'd argue that today, as opposed to say before 1930 or so, inflation is much more likely to be caused/limited through monetary and fiscal policy than through currency policy - the minting and recall of legal tender. – Pieter Geerkens Aug 30 '16 at 20:32
  • 1
    "Inflation is always and everywhere a monetary phenomenon" (Friedman) - I agree with you, but I'm not competent to explain all the issues and still be terse. – Mark C. Wallace Aug 30 '16 at 21:43
  • I'm not generally a fan of extreme salt-water economic theory, but I am surprised to hear Friedman say that irresponsible fiscal policy cannot cause inflation - my understanding was that most saltwater economists seem to claim otherwise, as in the rampant inflation of the 1980 time frame.. – Pieter Geerkens Aug 30 '16 at 22:16
  • I'm not talking about fractional reserve banking or deficit banking. Not talking about inflation per se (your point #5 is inaccurate, inflation is not defined as being caused by printing more currency; that's just one of several causes). We all know that governments print currency then give/sell it out to banks or some organization somehow. The govt can do the same thing electronically. That's what i'm talking about. – DrZ214 Aug 30 '16 at 23:51
  • 2
    I'm afraid that "we all know" and "some organization somehow" are a bit too vague to answer. I think you're talking about quantitative easing, in which case the answer is 2007, Bank of Japan. – Mark C. Wallace Aug 31 '16 at 0:17

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.