Is there such a thing as a money tree?

Money is the key to the modern world. Our lives pretty much revolve around it or at least depends on it.

No, there is no money tree that is magical. The magical money tree is something that has been heard of all around the world. Even the prominent people of the world, at one point in their lives used this phrase. However, this phrase is completely false. This is because if it was true, we could not be having limited cash in circulations and central banks could be issuing limitless amounts of it

Giving limitless amounts of currency to the public is not a good practice. This is because according to the bank of England, who aims to ensure that the growth of money is according to its objectives of maintaining low as well as stable inflation.

If there was an endless amount of money, it would have little value for all. This is the true restriction on creation of money as policymakers are always on the lookout not to overproduce it. Producing money is not as easy as talking about it, but a very complex process that depends on skill and luck. Commercial banks create money through some activities like issuing loans to the public. Loans are often limited by government, and can destroy families and businesses easily.

A magical resources-producing tree does not exist and neither does magical money. There is not enough money and resources in existence to meet each and every need and expectation.

Investors who work tirelessly to make their ends meet, definitely do not trust politicians with the so-called tree. Therefore, the power over the supply and circulation of money is taken very seriously by the known major investors.

In 1997, the financial markets welcomed a move of monetary policy powers to be handed down from the politicians and the Treasury to the Monetary Policy Committee (MPC), which is a strong team of nine. These monetary policy powers were formed on the basis that the government was not trusted as being in charge of the interest rates as well as other monetary policy instruments. Therefore, the financial markets entrusted technocrats like Monetary Policy Committee with monetary policy powers. This led to independent banks with least borrowing costs from the government, which is clearly represented by on 10-year bonds.

Investors were very excited to see that they were no longer controlled by the government. The government was no longer the key monetary policymaker. An example is drawn from England where Ken Clarke is said to have ignored the advice of Eddie George on interest rates who was the governor of the bank of England. This ignorance was because he wanted to ensure that the economy was growing rapidly as the election was approaching.

Comparing the yields on US and UK government bonds within a 10 year period, maturity stood at 1.8 percentage, which points in the decade before the Bank of England became independent. Consequently, Martin Weale, who is a member of the MPC attributed the central bank’s independence as a foundation of credible policy making, which ensures that the public have faith that it is free of political interference.

This clearly shows that there is no money magic tree. This clearly shows that there is no money magic tree. This clearly shows that there is no money magic tree. Monetary policy makers make sure that the money that is in circulation is just enough so as to maintain the value of money.

Translate »