Definition of scriptural money

  • 1288
  • 0

What is scriptural money?



Scriptural or book money is the money available on the current accounts of households and businesses. It is a simple accounting entry made by a financial institution (usually a bank). Scriptural money is therefore intangible, unlike fiduciary money (bank notes and coins). However, it can be converted into liquidity at any time. If an economic agent (household or business) does the opposite and deposits cash into their bank account, so the money is converted into virtual currency to appear on their account.

Scriptural money as a means of payment



Money deposited in a current account with a bank can be used at any time to make payments. To this end, the bank provides households and businesses with various means of payment, the main ones being: credit card, cheque, bank transfer or electronic money. Scriptural money can then circulate between economic agents. These non-cash means of payment are defined by the Monetary and Financial Code (Article L. 311). In France, the Banque de France is in charge of monitoring the security of transactions using scriptural money between economic agents.

In developed countries, these media are used in a large percentage of transactions. In third world countries, book money is used very little. Payments are made in cash.

For scriptural money to be used as a means of payment, economic agents must have confidence in the financial system. If this is not the case, then there is hoarding and the money available on the account is converted into cash.

Mechanisms for creating scriptural money



When a deposit is made to a current account by an economic agent, it becomes scriptural money. This money is used as a resource by the bank to offer credit to its other customers. A new accounting line appears on the borrower's account. This new fictitious money can be used and is therefore injected into the real economy. The money from this credit will generate income for producers of goods and services who can in turn deposit this money into their current account. Credits make future deposits. It is an additional resource for the bank, which has the possibility to grant new loans. This is called the credit multiplier. This phenomenon contributes to money creation.

The central bank plays a key role in this money creation mechanism. It can influence the level of credit granted by banks by changing its key rates, which include the refinancing rate. This is the rate at which commercial banks can borrow from the central bank. These resources then enable commercial banks to grant new loans to economic agents and thus to participate in the creation of scriptural money.

Scriptural money as a monetary aggregate



Scriptural money is used to calculate the money supply level. By adding scriptural money and currency in circulation, we obtain the monetary aggregate M1. This includes money in its most liquid form. It should be noted that nearly 90% of the money supply is scriptural money.
Central and commercial banks manage this mass of electronic money through computer programs. These programs record the movements of scriptural money between economic agents.

About author

  • 5
  • 21
  • 40
  • 0

Add a comment

no pic

Comments

0 Comments