These two are the most relevant where the reserves are mentioned:
NeilW wrote:TheMotorcycleBoy wrote:Sterling promises to pay the bearer the principal amount. Gilts promise to pay the bearer the principal amount at maturity plus the outstanding number of coupons until maturity. And therein lies the difference, the gilt vanishes at maturity.
So returning to your swap credits for either sterling (printing) or gilts (borrowing) remark; if the swap is for sterling the M supply increase is permanent but if for gilts the supply rise is temporary and is bound by the life of the gilt.
Hence printing and borrowing are different.
Matt
That's a fallacy of composition. What are the Gilts swapped back for at the end of the term? Sterling reserves. It doesn't disappear does it. It is simply exchanged for a period of time. Hence the point about the 'floating debt' and the 'unfunded debt'. Sterling reserves are just a different form of debt. You might call it 'money printing', but that is just pejorative.
As for the higher interest payment over time, that's precisely the point. Gilts are more expensive than the reserves which do earn a variable interest rate of, currently, 0.1%. So Gilt interest is a welfare payment (literally since the majority of the interest paid backs private pensions in payment), and welfare payments are spent - increasing the tax take which reduces the 'money supply' - funnily enough by the amount of the interest payment via the my spending is your income less tax and your income is my spending less tax chain.
and also:
NeilW wrote:You stated that swapping the earlier credit for either sterling or gilts, expanded the money supply by the same amount. However they don't because 1) the gilts created are later swapped back for existing sterling, hence their initial expanding effect (as addition IOUs) is cancelled but 2) the sterling created does not mature in the same way as the gilts so their initial expansion effect persists.
They are swapped back for *new* reserves, not existing. The previously cancelled reserves are simply reissued (and then later in the day swapped back for Gilts by the DMO cash management process, so the Gilts don't really mature anyway).
So working from first principles, i.e. starting with a very primitive society, where either clay tablets or simple coins are created initially as a "currency", presumably in a fixed quantity, and where the citizens pay a tax to the central body every year, what exactly are reserves? By the way I'm keen on learning about this topic "from the ground up", that is, without trying to dive straight into the deep end by looking at accounts etc. Alternatively, if anyone could recommend a good book on the subject, about how concepts like currency, banks, central banks, reserves and so on evolved that would too be appreciated.
Many thanks,
Matt