When I refer to "real money" I mean money, the asset, that can be redeemed by itself, without any trust. For example, gold is real money. Cash is real money; even if there's a trust from the government since they're printing it, there's no trust when I hand out a dollar bill. Bitcoin is real money et cetera.
With this definition credit isn't real money. You can create credit out of thin air. Credit requires trust to work; the existence of the previous assets.
My first question is: When a central bank wants to create money, does it have to print it? Since they are the only mint, what prevents them from pretending they have enough reserves (in cash) and increase their credit balance with zero risk? Why do they have to print notes and then burn them?
My second question is: Can a government create "real money" in an electronic form? I had watched once a Zeitgeist documentary regarding this matter, and said that the exchange of $10 billion in bonds between the US treasury and the FED happens electronically.
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Just a folk who tries to figure out what's happening in the world. Thanks!
Have some backgrond: https://www.investopedia.com/articles/investing/081415/under...
This answers your question. There is none of this "print notes and burn them" nonsense; notes are only burned when retired from physical circulation due to age or damage. In a modern economy money is created by pure acts of accounting.
You would also be well served to read up on https://en.wikipedia.org/wiki/Equation_of_exchange . Too many people get obsessed with the "M" and "P" terms, representing money supply and price level (inflation), while ignoring the other two.
"Real" money requires trust to work as well. That was the process by which Brazil got inflation under control by abolishing the currency and replacing it with a new one; nothing structural had changed, but the statement of intent and re-establishment of trust that the new currency was going to be stable against the dollar was important. https://en.wikipedia.org/wiki/Unidade_real_de_valor ; the resulting currency is literally called the "Real".
AS for the creation of money, it's not just the central bank that creates money. You should read up on fractional reserve banking. It turns out that retail banks do not need to back 100% of their loans with reserves. In the interplay between deposits and loans, this ends up creating money out of "thin air". This is also partly why FDIC insurance exists in the US. In the case of a bank run, the bank literally doesn't have enough reserves to immediately pay out to all the depositors. So the federal government promises to make up the difference.
https://www.investopedia.com/terms/m/money.asp
https://www.investopedia.com/terms/f/fractionalreservebankin...
Gold is rare, desirable (it's pretty!), reasonably useful in limited contexts, perfectly fungible, and easily portable due to its density. On this scale, Gold has a high degree of Moneyness and so people often say that "gold is money", and it has served as both exchange currency and store of value for millenia.
In contrast, cigarettes are useful, desirable, and fungible but not rare. Thus they form a poor medium of exchange or store of value. Unless you happen to be in a prison, where cigarettes are more difficult to acquire, and thus have increased Moneyness and can form the basis of a currency system.
With this background it's easy to see that digital US dollars possess the same amount of Moneyness as credit. Credit spends like dollars. Digital accounts spend like paper bills. If the context changes, then the relative value changes. Is the network down? Suddenly your credit card has reduced ability to act as a medium of exchange. The digital currency has reduced Moneyness. "Sorry, cash only", etc.
This is a long-winded way of discouraging you from trying to compare anything to "real money". There is no real money. There are only various objects and societal agreements that have greater or lesser degrees of Moneyness at this particular location and time in history.
Yes, so can banks, and so can you. That's how most money is created. Most money is an entry in a database saying that someone owes something to someone else.
If you walk into a bank with $1000 and open a checking deposit, you've created money. You've made a loan to the bank for $1000. The $1000 still exists, the bank has it, but there is also a record in a database that the bank owes you $1000.
Now the bank might also create more money. It might take the $1000 and give it someone as part of a loan to buy a house or car, for example. Now the $1000 still exists, the bank doesn't have it anymore, instead it has a record in a database that someone owes them $1000. That record is a form of money. The Fed also has ways of creating money, and it has ways of influencing how much money banks create.
People can also personally create physical money. If your friend needs $1000 and you have $1000, you can loan him $1000 and say "Write IOU $1000 on a piece of paper and give it to me". Money has been created. My money and banking professor told me, "Anyone can create money but it can be hard to get it accepted". There are a limited number of people who will accept your IOU as money.
Which all comes back to trust. All money is based on trust. The IOU is, the records in databases are, fiat money is, and money backed by gold is. When money is backed by gold, maybe the government that issues the money will keep its promise to redeem its currency for a specific amount of gold over the short or medium term. Over the long term, it won't keep that promise.
Fiat is credit for all intents and purposes. Fiat seigniorage is done through loans backed by the central bank and serviced though member banks.
There is no fiat without credit and there is little credit without fiat.
Lex Friedman's recent podcast with economist Saifedean Ammous is all about your question: https://podcasts.google.com/feed/aHR0cHM6Ly9sZXhmcmlkbWFuLmN...
adjust the Fed Funds rate: which is used as a target interest rate for many savings / lending instruments
Bank reserve rates: How much cash banks have to hold - that they can't lend.
Buy Bonds / Securities
In a more "normal" economy, adjusting interest rates has the biggest impact. Though, during the last financial crisis, you saw the direct buying of securities. However, historically, the fed often buys / sells bonds. Reserve ratio adjustments is the other common tool, though I'm not sure how frequently that's used.