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Money creation in the banking system using various accrual basis and cash base of accounting records in the bank balance sheet
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Mohammad Raeisi1   , Hashem Zare2 , Mehrzad Ebrahimi3 , Abbas Aminifard3 |
1- Phd Student of Department of Economics and Management, Shiraz Branch, Islamic Azad University, Shiraz, Iran
2- Assistant Professor of Department of Economics and Management, Shiraz Branch, Islamic Azad University, Shiraz, Iran , hashem.zare@gmail.com
3- Assistant Professor of Department of Economics and Management, Shiraz Branch, Islamic Azad University, Shiraz, Iran |
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Abstract: (1136 Views) |
The purpose of this paper is to examine how money is created by recording accounting events in the balance sheets of banks. Therefore, a hypothetical economy, comprised of a central bank, a gharzolhasaneh bank, a commercial bank, and the people has been simulated. We pay special attention to special accounting records in the balance sheet of a commercial bank, interest rates and deferred bank loans in the banking system and their effect on the money creation process. According to the results, the combined use of accrual basis of accounting in identifying uncollected facility income and cash basis of accounting in the payment of interest on deposits in a commercial bank leads to the money creation in the banking system and the higher the interest rate on deposits, the more money will be created. This will not happen in gharzolhasaneh Bank due to non-payment of interest on deposits and non-use of accrual basis of accounting system in identifying the income of paid loans. Also, in case of non-repayment of granted facilities and creation of deferred bank loans, the accrual basis of accounting system allows the commercial bank to continue the process of identifying facility income and paying unrealized interest on deposits, and interest paid on deposits enters the banking system as the new created money.
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Article number: 2 |
| Keywords: Money creation, Accrual basis of accounting, Interest rate, Simulation. |
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Full-Text [PDF 1474 kb]
(659 Downloads)
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Article type: Research |
Subject:
Special
Received: 2022/10/12 | Accepted: 2023/01/8 | Published: 2023/12/26
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