https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r Aidan Walker GNED-1140-AAA: Insights into Economics Professor Harpreet Kochhar April 14, 2022 en-us 2022-04-15 00:51:54 UTC 2025-05-11 19:22:57 UTC hello@padlet.com fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144479350 2022-04-15 00:53:10 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144479350 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144479770 The way in which banks create and generate capital is a commonly misunderstood system. Banks are heavily regulated both in Canada and Internationally, and their ability to create money is heavily influenced by global financial trends.]]> 2022-04-15 00:53:48 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144479770 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144480566 2022-04-15 00:54:55 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144480566 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144481857 Banks create money primarily through two functions. 
The first is private commercial bank loans. These loans/securities are purchased by private banks (IE not the Bank of Canada) from the Bank of Canada. These securities are then sold by investment dealers, brokers, and banks to investors. These are often called bonds or Treasury bills.

The second method is through the sale of securities from the Government of Canada to the Bank of Canada. This essentially allows the government to get a loan from the Bank which must be repaid later in time.

I chose this article because it is a easily digestible and matter-of-fact article. The fact it is also published on a Government of Canada website makes it trustworthy.]]> 2022-04-15 00:56:44 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144481857 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144482353 2022-04-15 00:57:32 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144482353 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144482489 The Bank of Canada creates money through the buying up of the Government’s debt. This is not the only method of money generation. Private banks create money when issuing loans to individuals and businesses. This is often in the form of a mortgage, line of credit, or business loan. The borrowee creates a matching deposit in the borrower’s account which creates money. This is because Canada has a Fractional Reserve Banking system. When an entity deposits money into a bank, there’s a certain percentage which can be lent out to another entity. However, the balance of the account from the first entity remains the same. 

I chose this article because is highlighted the fact that most people have no idea how money is created or lent. It also discusses the Fractional Reserve Banking System.]]> 2022-04-15 00:57:43 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144482489 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144482893 2022-04-15 00:58:17 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144482893 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144483035 A bank has a certain quantity of assets, lets say currency, valued at X amount. The bank may be required to keep 1/10th of that value in reserve. However, the remaining 9/10ths may be loaned out to other entities (with interest) and earn returns for the bank, thus creating money. When that loan is cashed into another bank, the value of their assets increases by that amount, thus raising the amount which that bank can loan out and gain interest on. In countries with a multi-bank system, like Canada, this multiplies the money each time the money moves between banks. This is known as the Money Multiplier System. The way to calculate the number of times a loan will be multiplied as it is spent and deposited into other banks. The formula for this is (1/Reserve Requirement) or one over the reserve requirement.

I chose this article because it discusses multi-banking system and the money multiplier system. These are fundamental principles of money generation and build the foundation for how banks in Canada generate wealth.]]> 2022-04-15 00:58:31 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144483035 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144483595 2022-04-15 00:59:20 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144483595 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144483835 This article discusses some of the downsides of a Fractional Reserve System and how it can negatively impact the economy. The vast majority of money created by Canadian banks is created out of thin air as Interest Bearing Loans. Basically hoping that economic growth will allow us to pay off this debt in the future. The problem with this is that should there be a large economic downturn as the result of war, environmental changes, refugee crises, and global pandemics, we may not be able to pay off this debt. This requires the total supply of money to increase to pay the interest on past loans. When this gets out of control we see inflation. Inflation is when the Bank of Canada adds more currency into circulation. As more currency is added, the intrinsic value of each dollar becomes lower. When the economic growth runs out, or stalls, this inflation keeps the system from collapsing. The trouble begins when inflation outpaces the economic growth and wages do not rise as fast. 

I chose this article because it is important to highlight some of the dangers of using a fractional reserve system. Especially nowadays when the fractional reserve system has essentially been phased out. This means that 100% of a deposit can be loaned with interest meaning that there may be no actual money in a bank, just debt to be repaid.]]> 2022-04-15 00:59:42 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144483835 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144492478 2022-04-15 01:10:16 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144492478 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144492678 Banks create money through the fractional reserve system. However, Canada does not strictly follow this system because up to 100% of their money can be loaned out. When an entity deposits the money into the bank, some or all of that money is then loaned out of other entities in the form of mortgages or business loans. These loans carry interest at a predetermined percentage, often depending on the amount or value of assets that entity has as collateral should they default on the loan. The loan will be spent and end up in another bank at some point in time. The bank will then repeat the process of taking the deposit, keeping a small reserve, and loaning the majority of it back out. This creates a problem when everyone wants to withdraw all their money from the bank at the same time. This is called a ‘bank run’ and is extremely bad. A good example of this was during the Great Depression when banks could only offer 5-10 cent returns per dollar to their customers. 

I chose this video because it was very straight forward, simple and well researched. Although it did not have many of the nuances of the Canadian banking system it is still an excellent video to explain the basics.]]> 2022-04-15 01:10:30 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144492678 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144493093 2022-04-15 01:10:55 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144493093 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144493287 Banks create money by collecting deposits which allow them to create loans. When you place your money in a bank, they will earn you a small amount of interest at a predetermined amount. For most savings accounts this won’t be much more than a couple percent per year. The bank will then take your money and loan it to others at a much higher interest rate. That is the profit, and the interest you earn is the expense. Fractional reserves allows the bank to loan out a large fraction (or all) of your money to another entity whilst keeping your account at the same sum. For example, if you deposit $100, the bank can then loan out up to 100% out to another customer, creating up to $200. That other hundred dollars is NOT cash, and is debt owed to the bank. Banks will usually keep a small amount in reserve (5-10%) so that customers who want to withdraw money from their account may do so. 

I chose this video because it explains more in-depth the concept of money multiplication and the broader impacts it has on national and international money markets.]]> 2022-04-15 01:11:08 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144493287 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144493703 2022-04-15 01:11:39 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144493703 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144493876 Banks often create 100x more money than one would expect. When banking was invented, people traded in gold and silver. These metals were very valuable and their value was well defined. As such, they were very useful as a means of currency. The first banks would offer to protect the gold of their customers for only a small fee, and the customer could withdraw as much money as they had in their account. Bankers began issuing fake receipts (especially to poor people) and charging interest on them. This is the genesis of modern banking.

I chose this video because it gave a basic introduction to the history of banking. This video also relates the process used in ancient times back to the modern day. This was a unique take on the banking system and shows that although there is much more nuance to banking today, the principles remain the same.

]]> 2022-04-15 01:11:50 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144493876 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144494365 2022-04-15 01:12:29 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144494365 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144494508 The Bank of Canada buys Government of Canada bonds for cash. Those bonds are bought with interest and it pays dividends to the federal government. The money the government spends into circulation then ends up in private bands where the money multiplier system takes over and creates money based on debt owed. This allows the banks to increase their reserves which allows them to then lend more money to their customers. 

The Bank of Canada has been responsible for Canada’s prosperity in large part because of its ability to regulate and stabilize our economy. In the first 35 years of its life, it helped us get out of the Great Depression and finance and fight World War 2. It also created capital to setup long term infrastructure projects which built much of the infrastructure we live and drive on today. However, in the 1970s, the system changed and subsequently the Government of Canada now often borrows directly from private banks and not from the Bank of Canada. 

I chose this video because the topic of borrowing as debt has not been talked about very much. It is very interesting how this change occurred during a pivotal time in Canada and has been linked to much of the negative economic fallout since then. The misuse and poor utilization of the Bank of Canada serves as an important reminder of how powerful the banking lobby is in Canada.]]> 2022-04-15 01:12:40 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144494508 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144498441 2022-04-15 01:17:11 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144498441 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144499869 2022-04-15 01:18:54 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144499869 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144500023 Money starts at the Bank of Canada as currency circulated into the nation’s economy. It is then deposited into private banks which loan most of the money back out to other customers. This creates new money equal to the value that was loaned and continues in a loop across many customers and many banks. 

I chose this image because it shows the circular flow of money through the economy as it is traded for goods and services and loaned out to fund more goods and services.]]> 2022-04-15 01:19:05 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144500023 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144500334 This image breaks down the money supply of a nation and how it breaks down into fractional reserves. The central bank prints a set amount of money into circulation and distributes it throughout the nation’s economy. The money then finds its way into smaller private banks. These smaller banks then loan out most of their reserves and charge interest on the loans. It is important to note that only a small percentage of a nation’s currency is in physical forms (coins and cash). The rest is contained as numbers in banks computers in the form of digital currency. 

I chose this image because it does a good job of showing the entire money distribution within a nation.]]> 2022-04-15 01:19:27 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144500334 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144598992 I learned a lot researching this topic. What surprised me however was how completely absent this information was in my schooling up to this point. It seems that the vast majority of Canadians are not adequately educated on how the monetary system works and how fragile it can be. One of the articles I read mentioned that 85% of British MPs have no idea where money comes from. It’s startling that there’s likely a very similar figure for Canadian MPs.]]> 2022-04-15 03:21:56 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144598992 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144599426 This topic is relevant to me because I want to work in the government and find the concepts of currency and exchange very interesting. With my current interests in policing I could find myself investigating financial crimes relating to fraud, securities, and currency. Having a cursory knowledge of the basic money systems in Canada is hugely beneficial for that job. 

Growing up I have always wondered how these institutions amassed such huge wealth and it seems like nobody wants to discuss how heavily these institutions are influencing our lives. I think every citizen has a responsibility to understand these concepts to better protect themselves.]]> 2022-04-15 03:22:30 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144599426 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144599614 If I could, I would pass on the information surrounding the corruption in banking. After watching videos on how the Bank of Canada was blindsided by private banks, I am angry that there has been little effort to revert those changes. The Bank of Canada has a proven track record of protecting our economy and in the aftermath of COVID it would be very useful.]]> 2022-04-15 03:22:47 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144599614 fq5p24bfww https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144606767 This short presentation is designed to build a basic understanding for the process of money creation by banks in Canada. We will discuss private banks as well as the Bank of Canada. We will also touch on the process by which the government borrows money in exchange for securities. We will cover the basics of the Fractional Reserve Banking System and the Money Multiplier System. 

Finally, we will discuss some of the history of banking and the history of the Bank of Canada.

I hope you enjoy!]]> 2022-04-15 03:32:48 UTC https://padlet.com/fq5p24bfww/u4nxze4q25i25f7r/wish/2144606767