If you define "money" as something backed by, or regulated by, the Federal Reserve, then that's what money is. And if you define "money" as something that is backed by gold, then that is what money is. For you.
But money also exists outside of governments and banks, I think. Money allows third parties to enter into a barter transaction by use of an indirect agent, which, historically, did not necessarily have intrinsic value, e.g., scrip.
The Federal Reserve has reserve requirements on transaction deposits only, in the amount of 10%, essentially checking accounts. There is no reserve requirement on savings accounts, money market accounts, or CDs.
If the bank has $10,000 in CDs and I borrow it and put it in a money market account, the Federal Reserve has no control over that at all. If all I do is write checks, and never touch currency, how did the Federal Reserve create money? I think the bank and I did. |
