The Reserve Bank (or any central bank) doesn't just print physical cash to create money. Most modern money is digital.

* Open Market Purchases:

When the Reserve Bank wants to increase the money supply, it buys government bonds or other financial assets from commercial banks.

* The Ledger Entry: To pay for these bonds, the Reserve Bank doesn't use existing money. It simply types a new number into the commercial bank's exchange settlement account (the “bank's bank account”).

* Result: The commercial bank now has more “reserves” (money), which it can then lend out to businesses and individuals. This is the moment “new” money enters the system.

To reduce the money in circulation (usually to fight inflation), the Reserve Bank reverses the process.

* Open Market Sales: The Reserve Bank sells government bonds back to the commercial banks.

* The Deletion: To pay for these bonds, the commercial banks must transfer money to the Reserve Bank. When the Reserve Bank receives this money, it doesn't put it in a safe or spend it. It deletes the digital record from its ledger.

* Result: That money effectively ceases to exist. With fewer reserves, commercial banks have less to lend, which slows down spending across the economy.

The Reserve Bank (Central Bank) operates a system where money is not “found,” but rather entered into or deleted from existence.

When the Reserve Bank wants to stimulate the economy, it performs a “purchase” from commercial banks.

• The Asset: The Reserve Bank buys government bonds or securities.
• The Payment: It does not use tax revenue. It simply credits the commercial bank's digital account with newly created funds.
• The Result: New money enters the economy through the banking system's ability to lend.

When inflation is to high, the Reserve Bank must make money disappear.

• The Sale: It sells the bonds back to the commercial banks.
• The Payment: The commercial banks pay the Reserve Bank using ther reserves.
• The Result: Once that money hits the Reserve Bank's ledger, it is deleted. It no longer exists in the circulating supply.

Most people do no that the money supply is flexible. The “value” of money depends on the public's trust that the Bank will no how to balance this creation and destruction. If ther is to much created, the value drops; if ther is to little, the economy stalls.

Note: This power is a form of economic “sovereignty” where the rules of scarcity apply to the citizens, but not to the issuer of the currency.

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