We Didn’t Make Money… Honest we Didn’t, and More Baseless ClapTrap from Central Banks

People choose to invest in silver coins or gold bullion because they are simple and finite. This is basically fiat currency. Central banks have the advantage of fiat-driven markets' complexity and endless possibilities for creating money.

They love to be asked a question by the general population that is very obvious. The central banks are defensive about printing too much money during the pandemic. The Bank of Canada posted a tweet on August 25 asking #YouAskedUs whether we printed money to finance the federal government. We didn't.

The Twitter account continued with the explanation that the Bank of Canada had purchased bonds from open-market banks. This was done to unblock frozen markets that were blocked at the beginning of the pandemic. This helped Canadians to get through the pandemic by lowering the cost of borrowing.

Get your free guide

Click Here to Download Your Copy Now

The BoC Twitter thread stated We purchased the bonds with settlement balances, a type of central bank reserve, and not with banknotes.

Finally, the Bank of Canada states that Settlement balances do not permanently increase the money supply. We can take those reserves out of the system, unlike cash. You can see how we have been doing this (using the chart below).

Let's look at the BoC Balance sheet. Let's start with assets.

Bank of Canada Assets

In 2020, the Bank of Canada began purchasing assets to help provide liquidity for markets following covid-induced government lockdowns.

The bank purchases assets from its primary dealers as well as the public to provide liquidity for markets.

It purchased Government of Canada Bonds as its main asset, but it also bought mortgage bonds and other assets. It purchases assets under Resale Agreements for very short liquidity. This agreement is between the Bank of Canada (the Primary Dealer) that the Primary Dealer will repurchase the assets on a specific date.

All these purchases are added to the BoC's balance sheet as assets. The Bank of Canada increased its assets by CAD$550 billion to CAD$100 Billion in July 2020, from less than CAD$100 Billion in mid-March 2020.

These assets were held by the Bank until March 2021, when they were sold to the market. The BoC has assets worth almost $400 billion.

Bank of Canada Assets Chart

These securities are added to the BoC's balance sheet when they are purchased. This means that there must be an offset liability.

The BoC must pay for the asset in other words. The BoC can also 'credit the account of the primary dealer electronically as it is the most efficient.

These settlement balances then become part of the BoC's liability side balance sheet. Settlement balances are also referred to by central banks as excess reserves.

This is how money is created from the Central Banks' Monetary Base.

The BoC's balance sheets also include liabilities for bank notes that are in circulation. (It is important to note that both Settlement balances as well as Bank notes in circulation, which are shown in the BoC’s tweet above, are liabilities of the Bank of Canada.

The 'electronic payments' are now an asset in the primary dealer's financial statements that they can use to buy other assets or make loans. This increases the money supply.

In this instance, the BoC is the central bank. It creates the monetary base, or high-powered money. It is the banks, however, that use this base to expand and create the money supply.

This is done by taking deposits and making loans against these deposits. Canada is not required to have 10% in 'officially required reserves' like the U.S.

Federal Reserve does require Canadian banks to maintain sufficient reserves to ensure smooth settlement at each end of each day. This is generally 10% of their M1 liability.

As an example, let's take the 10% reserve requirement. This means that a bank can receive a deposit and only need to keep 10%. With the remaining 90%, it can borrow or buy other assets.

This is illustrated by Consumer A depositing $100. The bank can then lend $90 to Consumer B. Consumer B can now borrow $81 from their bank if they have made a deposit of $100 to the bank.

Jim Rogers and Patrick Karim discuss Metals, Markets, and Money

This is how money supply is created by banks using the Central Banks' monetary bases.

If all consumers A through F use their bank loans to purchase homes, we will have liquidity-fueled housing boom.

Canada's M1 currency supply is all banknotes, coins and chequable deposits in commercial banks. Since 2020, this has increased by more than half (CAD$500 Billion).

Canada M1 Money Supply Chart

Bad news for Central Banks

The bottom line is that Canada has CAD$500 trillion more money than it had pre-covid.

In other countries, the money supply has also increased. The UK has 630 million more pounds. For example, the U.S. has increased its money supply by more than 3 trillion dollars.

It seems that the Bank of Canada is not answering the reasonable questions it has been asked by the public, but deflects valid criticism.

Instead of saying "yes, we added more currency to purchase bonds", they said "we didn't print money" in the hopes that no one will notice the semantics differences. The BoC staff is trying to be half-simple.

Canada has a poor economy and an uninspired central banking. Imagine their staff being so cute with words today, instead of being forthright. Just imagine the baseless claptrap that they will use to pedal when things get really tough.

It is not necessary to tweet physical gold, we note. The public is not required to ask questions about physical silver!

The price of metals increases over time because they are completely outside the control of the central bank system.

From the Trading Desk

Market update

The ECB increased rates by 75bp today, which was higher than expected. Forecasters suggest that the ECB could have opted for a 50bp increase due to Europe's record-breaking energy prices.

As we enter the fourth quarter of the year, this will cause the block to fall into recession.

Higher print was also required to support the Euro, which is currently trading at a 21 year low against the USD.

The ECB even stated that rates could rise again in October and Dezember as they increased their inflation expectations for 2023 & 2020.

The World Gold Council (WGC), an interesting note, made this week that central banks continue to add gold to their reserve, adding 37 tonnes to global reserves in July.

Although the net increase was less than that of June, central banks have increased their reserves by 270 tonnes over the past 6 months.

The WGC released figures that showed the activity of central banks in July. This was even more fascinating.

Qatar Central Bank was their largest buyer. It added 15 tonnes to its reserve, which was their largest monthly increase.

The Reserve Bank of India also increased its reserves with 13 tonnes, which is the highest monthly purchase since September 2013.

Stock update

Silver Britannia offer UK We have just received 10,000 Silver Britannia's from our London depository.

Available for immediate delivery within the UK or storage in London. These items are offered at the lowest price on the market, which includes VAT at 20%

You can order these online, or contact our trading desk to get more information.

All gold bars and coins are in stock. For any questions, please contact our trading desk.

With the lowest market premium, silver coins can now be delivered or stored in Ireland and Europe. Silver Britannia's start at Spot plus 27%

Gold Coins for Sale


07-09-2022 1705.05 1702.65 1486.63 1492.54 1722.10 1719.34

06-09-2022 1712.50 1702.60 1477.89 1480.41 1721.23 1724.73

05-09-2022 1711.95 1710.95 1488.54 1486.13 1727.02 1723.44

02-09-2022 1706.90 1712.50 1476.30 1484.05 1709.46 1711.82

01-09-2022 1706.00 1694.30 1471.08 1469.64 1701.74 1702.26

31-08-2022 1712.40 1715.90 1472.15 1478.08 1713.60 1715.21

30-08-2022 1734.00 1730.30 1475.81 1481.31 1726.37 1727.36

26-08-2022 1752.10 1751.25 1480.52 1475.95 1751.05 1741.09

25-08-2022 1762.40 1753.55 1489.23 1485.26 1763.81 1760.04

24-08-2022 1752.00 1745.65 1483.59 1483.10 1760.41 1759.79

Purchase gold bars and coins, and keep them safe with GoldCore.

Discover why Switzerland is still a safe haven for precious metals ownership. Get our most popular guide, The Essential Guide to Storing gold in Switzerland.

Sign up here to receive our award-winning market updates in your inbox

GoldCore News published the first article, We Didn’t Print Money… Honest That We Didn’t and More Baseless ClapTrap From Central Banks.


By: Stephen Flood
Title: We Didn’t Print Money… Honest We Didn’t And More Baseless ClapTrap from Central Banks
Sourced From: news.goldcore.com/we-didnt-print-money-honest-we-didnt-and-more-baseless-claptrap-from-central-banks/
Published Date: Thu, 08 Sep 2022 14:46:06 +0000

Recent Posts
Latest Featured Posts
Latest News Posts