[throw868788]

Realising this is what made money a lot easier to understand for me, and simplified the difference between different kinds of money. In the end its easier just to think of them as different currencies with stable pegs. It answers questions like - how can the banks issue money? Of course some of them are easier to exchange with (e.g. bank credit over notes) and this makes them more useful in trades.

For example (bank money = real money) only because the bank is willing to keep the peg at (1.00 bank credit = 1.00 real currency) as you state whenever you use an ATM, take money out at the counter, etc. When the bank runs out of real money to maintain this peg it can and has deviated in the past (e.g. people selling their bank accounts at say 30c to the dollar in the great depression). In normal times however their much smaller money stock is enough to keep the peg going against the usual net deposit/withdrawal flow.

Of course if a central bank comes in and can lend that bank unlimited real money the peg could be maintained. Indeed that can and has happened.

[imtringued]

There are some ideas to implement negative interest rates on bank accounts only but keeping cash by introducing a second cash currency that explicitly does not follow a stable peg. I.e. inflation targeting only has to be done on cash not bank accounts. Bank accounts will get price level targeting which means no inflation.

https://blogs.imf.org/2019/02/05/cashing-in-how-to-make-nega...

[throw868788]

I guess what I don't understand by this proposal is how the exchange rate is actually maintained. Will they print a lot more cash to keep the exchange rate depreciating as thus? The devil will be in the detail of this.