Contents -- Preface 9 -- Acknowledgements 11 -- Part I: Money 13 -- 1 Money as monetary aggregates 13 -- 1.1 Definition of Money 13 -- 1.2 Monetary aggregates 16 -- 1.3 Monetary aggregates in the USA 17 -- 1.4 Monetary aggregates in the Eurozone 19 -- 1.5 Monetary aggregates in Japan 20 -- 1.6 Monetary aggregates in the United Kingdom 21 -- 2 Creation and Extinction of Money I 22 -- 2.1 Where, how and when does the money create and become extinct 22 -- 2.2 Loans granted by banks to non-bank entities 26 -- 2.2.1 Principles of money creation through loans 26 -- 2.2.2 Primary and secondary allocation of money 31 -- 2.2.3 Impaired loans 32 -- 2.2.4 Corporate loans 36 -- 2.2.5 Household loans 37 -- 2.2.6 Finance lease 38 -- 2.2.7 Legal environment 39 -- 2.2.8 External credit rating 39 -- 2.2.9 Internal credit rating 42 -- 2.2.10 Information about the borrower's financial conditions 43 -- 2.3 Interest paid on deposit and other liabilities of banks to non-bank entities 43 -- 3 Creation and Extinction of Money II 46 -- 3.1 Assets and services purchased by banks from non-bank entities 46 -- 3.2 Buy back of banks' own securities from non-bank entities 48 -- 3.3 Payments of wages and salaries to bank employees, management and statutory individuals 50 -- 3.4 Payments of dividends and royalties 51 -- 3.5 Extinction of money 52 -- 3.5.1 Repayment of loans to banks by non-bank entities 53 -- 3.5.2 Assets and services sold by banks to non-bank entities 55 -- 3.5.3 Issue of banks' own equity and debt securities to non-bank entities 58 -- 3.6 Payments between clients of one commercial bank 60 -- 3.7 Domestic currency payments between clients of two commercial banks 60 -- 3.8 Foreign currency payments between clients of two commercial banks 63 -- Part II: Liquidity 67 -- 4 Liquidity and reserve requirements 67 -- 4.1 Liquidity and bank reserves 67.

4.2 Role of reserve requirements 79 -- 4.3 Examples of reserve requirements 84 -- 4.3.1 Fed 84 -- 4.3.2 European Central Bank 84 -- 4.3.3 Bank of Japan 85 -- 4.3.4 Bank of England 85 -- 5 Examples of banking systems 86 -- 5.1 Example of banking system without central bank 86 -- 5.2 Example of banking system with central bank 91 -- 5.2.1 Central bank without currency and reserve requirements 91 -- 5.2.2 Central bank with currency and no reserve requirements 92 -- 5.2.3 Central bank with currency and reserve requirements 102 -- 6 Financial statements of central banks 108 -- 6.1 The basics of financial statements 108 -- 6.1.1 US generally accepted accounting principles 108 -- 6.1.2 International Financial Reporting Standards 109 -- 6.1.3 EU directives and regulations 110 -- 6.1.4 The role of accounting in regulation of financial institutions 111 -- 6.2 Role of central bank 112 -- 6.2.1 Monetary policy 113 -- 6.2.2 Central payment system and the administration of banks' current accounts 114 -- 6.2.3 Banking supervision 114 -- 6.2.4 Issue of currency 114 -- 6.2.5 Foreign exchange reserves administration and interventions 114 -- 6.2.6 Administration of government accounts 117 -- 6.2.7 Administration of treasury securities auctions 117 -- 6.2.8 Granting loans to government 123 -- 6.2.9 Concern over government budget 127 -- 6.2.10 Financial statistics for local, state and federal authorities 127 -- 6.2.11 Lender of last resort 127 -- 6.3 Three structures of the central bank's balance sheet 128 -- 6.4 Examples of the central bank's financial statements 132 -- 6.4.1 Balance sheet and income statement of the Fed 133 -- 6.4.2 Balance sheet and income statement of the European central bank 137 -- 6.4.3 Balance sheet and income statement of the Bank of Japan 141 -- 6.4.4 Balance sheet and income statement of the Bank of England 141 -- 6.5 Seigniorage 147.

Part III: Monetary policy 151 -- 7 Basics of monetary policy 151 -- 7.1 Monetary policy framework 151 -- 7.2 Monetary policy instruments 155 -- 7.2.1 Open market operations 155 -- 7.2.2 Automatic facilities 157 -- 7.2.3 The Fed 159 -- 7.2.4 The Eurosystem 165 -- 7.2.5 The Bank of Japan 166 -- 7.2.6 The Bank of England 167 -- 8 Operating, intermediate and ultimate targets 170 -- 8.1 Operating targets 170 -- 8.1.1 Operating targets in the history 170 -- 8.1.2 Current operating targets 171 -- 8.2 Intermediate targets 172 -- 8.2.1 Monetary aggregates targeting 172 -- 8.2.2 The use of monetary aggregates 175 -- 8.2.3 Exchange rate targeting 178 -- 8.3 Ultimate targets 179 -- 8.3.1 Price stability 179 -- 8.3.2 Definition of Inflation 183 -- 8.3.3 Real and nominal interest rates 185 -- 8.3.4 Deflation 188 -- 9 Inflation targeting 195 -- 9.1 History of inflation targeting 195 -- 9.2 Explicit inflation target 198 -- 9.3 Transparency and accountability of central bank 200 -- 9.4 The role of inflation forecasts 202 -- 10 Monetary policy transmission mechanism 204 -- 10.1 Monetary policy channels 204 -- 10.2 Transfer to other market interest rates 210 -- 10.3 Effects of inflation expectations 211 -- 10.4 Persistence of prices and wages 212 -- 10.5 Monetary policy lags 213 -- 10.6 Monetary policy, GDP and employment 214 -- 10.7 Monetary policy rules 218 -- 10.7.1 Autopilot of monetary policy 218 -- 10.7.2 NAIRU 219 -- 11 Foreign exchange interventions and dollarization 221 -- 11.1 Foreign exchange interventions 221 -- 11.1.1 The essentials of foreign exchange interventions 221 -- 11.1.2 The reasons for FX intervention 224 -- 11.1.3 Effectiveness of Interventions 225 -- 11.1.4 Evidence from some countries 225 -- 11.2 Dollarization 227 -- 11.2.1 Advantages and Disadvantages of Dollarization 228 -- 11.2.2 Dollarized countries 230.

12 Monetary policy in some countries 232 -- 12.1 Monetary policy in the USA 232 -- 12.1.1 Monetary policy till the 1960s 232 -- 12.1.2 Monetary policy from the 1960s 234 -- 12.2 Monetary policy in the Eurozone 238 -- 12.3 Monetary policy in Japan 243 -- 12.4 Monetary policy in the United Kingdom 246 -- 12.5 Some general trends 251 -- Part IV: Payment systems 253 -- 13 Payment systems 253 -- 13.1 Essentials of payment systems 253 -- 13.1.1 Interbank payment systems 253 -- 13.1.2 Forms of bank payments 257 -- 13.2 Settlement systems 260 -- 13.2.1 Gross settlement systems 260 -- 13.2.2 Net settlement systems 261 -- 13.3 Payment systems in the United States 267 -- 13.4 Payment system in the Eurozone 268 -- 13.5 Payment system in Japan 271 -- 13.6 Payment system in the United Kingdom 272 -- References 275.