Part 1:

Whether money is an endogenous or exogenous variable has been an ongoing debate in

momentary economics (Sieron, 2019). The debate can be attributed to Post Keynesian economics

and Keynes' Liquidity preference theory (Sieron, 2019). The main difference between this school

of thought comes down to who controls and monitors the economy's money supply. In

exogenous money, the monetary authority/ central bank controls and monitors money circulation

in the economy. Whereas in the endogenous approach, the circulation of money in the economy

is determined by its factors.

Part 2

The use of modern paper money can be traced back to the 18th Century when the Bank of

England introduced large-scale production and paper money circulation. The effects of the Bank

of England move can still be felt to this present day. Paper money revolution was not a one-off

event but a long-standing trend in England's monetary tradition.

According to Christine Desan's momentary framework, there several new insights we can

get to learn. First, Desan's framework introduces money as sovereign in nature (Ernst & Fox,

2016). With the Bank of England's creation and the introduction of paper notes, the government

introduced its currency supply. The Government of England created its currency by taking from

the future taxes instead of increasing the taxes.

Secondly, the introduction of paper notes lead to capitalism. Before introducing paper

notes, people relied on the barter trade to carry out commerce. Barter trader was only possible if

two individuals exchange items of equal value. The problem with barter traders is the issue of

durability. Most of the things exchanged had a lifespan, which means their value could not be
stored for a long time. Capitalism was only possible after the introduction of paper notes. Paper

notes were durable and represented store monetary value (Ernst & Fox, 2016).

Thirdly, Christine Desan's momentary framework brings into light the institutionalization

of self-interest (Roberds, 2016). Desan's momentary framework highlights that at the core of

capitalism is self-interest. In Desan's study, she uses paper money as a unit to examine self-

interest, and the more someone accumulates paper money, the more selfish the person is.

Finally, Desan's framework highlights how free minting of money interfered. During the

introduction of paper money only the Bank of England had the powers to create and issue paper

money. Furthermore, the Bank of England became an investment to the government as the Bank

started issuing shares (Roberds, 2016). The Bank became both a private and a Government

facility, with the Government of England having the majority shares.

Part 3

Many people view Central Banks as intermediaries in the supply and circulation of

money. For them, they tend to think that the only work of Central Banks is to manage flows of

capital from the individuals who have to those who are in need the money (Hockett &Omarova,

2017). However, Central Banks play a huge role in the creation of currency.

Central Bank's primary work is to accommodate money creation by private banks. To

fully understand how Central Banks accommodate private banks' money creation, it is first vital

to understand private banks' money creation.

Private banks act as a money circulation tool by acting as intermediaries with depositors

who have surplus capital with entities that require fast and temporary access to this surplus

capital (Hockett &Omarova, 2017). These entities can include households and government
entities. Upon receiving a loan application from a credit-worthy household or business, the Bank

issues the loan to the trustworthy entity. It then credits the borrower accounts. In the Bank's

books, the transaction is viewed as an asset and liability. The loan is an asset because it is now

owned as a loan with interest. The loan is a liability because the Bank has to honor its

withdrawals from depositors' accounts (Hockett &Omarova, 2017).

In creating money, the Central Bank accommodates the private banks' liability. Central

Banks do this by crediting the reserve account of private banks (Hockett &Omarova, 2017). By

doing this, it allows the borrower's cheque to clear. Without the Central Bank's move to credit

the reserve accounts of private banks, the borrower's cheque will not clear and will have a ripple

effect on the economy.

The other function of the Central Bank is public monetization. When a trustworthy

household or business seeks a private bank loan, they do sign a promissory note. The Central

Bank then publicly monetizes the promissory note by crediting the private Bank reserve account

so that the borrower cheque does not fail. The Central Bank places its faith and credit on the

borrowers through public monetization (Hockett &Omarova, 2017). Here, private banks' role is

to identify credit-worthy businesses or households for the Central Bank to public monetize the

promissory note signed by the borrower. In return, private banks can create money by earning

from the interests paid by the borrower.

Financial markets act as links between firms looking for capital to expand or carry out

their operations and individuals with scarce and pre-accumulated money (Hockett &Omarova,

2017). There are different types and dynamics in financial markets. Financial markets worth

mentioning include securitization & repo markets and Credit Derivatives Markets &

Clearinghouses (Hockett &Omarova, 2017).

 Both of these financial markets play a critical role in economic financing. Securitization

& Repo Markets involves pooling and using revenue-generating assets as collateral to issue debt

insecurities. Securitization & Repo Markets revolves around the term repo, which entails selling

assets and promising to buy the same assets within a short time at a higher price margin. On the

other hand, Credit Derivatives Markets & Clearinghouses is a shadow financial market that can

either amplify bank lending abilities or replicate bank lending (Hockett &Omarova, 2017).

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REFERENCES
Ernst W. & Fox D.(2016).Money in the Western Legal Tradition: Middle Ages to Bretton

Woods. Money as Legal Institution,1-

35.doi:10.1093/acprof:oso/9780198704744.001.0001

Hockett, C.R. & Omarova, T.S.(2017). The Finance Franchise. Cornell University: Cornell Law

Faculty Publication

Roberds, W. (2016). Review of Making Money: Coin, Currency, and the Coming of Capitalism

by Christine Desan. Journal of Economic Literature, 54 (3): 906-21. doi:

10.1257/jel.20151332

Sieron, A. (2019). Endogenous versus exogenous money: Does the debate really matter?

Research in Economics, 73(4),329-338. https://doi.org/10.1016/j.rie.2019.10.003