Visualization of the monetary financial system, which is built on central bank money, thrives on private bank money, and is topped of with a large layer of other financial instruments.
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This video builds on the academic theory which is known as the hierarchy of money. The main point of the hierarchy of money is that some forms of money are better than others. It is a theory that is very popular in post-Keynesian economics. It is also compatible with Modern Monetary Theory (MMT) since it includes money creation by both the private sector and the state.
When the economy is doing well, this hierarchy can be difficult to see. However, when there is a crisis, it will become immediately obvious that your hedge fund investments are better sold in exchange for private bank money. And when the going really gets tough, you might even be better off to run to your local bank and withdraw all of your money to walk home with a bag of cold hard cash (bank run).
I like to visualize the hierarchy of money as a circle where there is a monetary core of central bank money (including M1, M2, and M3 money, as well as reserves, that can either be created through money printing, monetary finance, or quantitative easing), a large monetary periphery of money created by private banks, and an even larger financial crust that contains all other financial instruments (such as those issued by shadow banks and money market mutual funds).
Using this visualization has helped me tremendously over the years to understand discussions in monetary and financial economics as well as international monetary systems. I hope it will do the same for you.
Want to read the script for this video? Check it out in the form of a blog post here: [ Ссылка ]
Narrated and produced by Dr. Joeri Schasfoort (University of Cape Town)
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Attribution:
- Photo of Hyman Minsky by Pontificador via Wikimedia Commons
