Shalva Mkhatrishvili, Head of Macroeconomics and Statistics Department of the National Bank of Georgia, participated in the Better Policy Project (BPP) seminar. The event was held on 26^th of January. The BPP aims to advance the frontiers of monetary, macroprudential and fiscal policies around the world, including by strengthening analytical communication.

 

At the seminar, Shalva Mkhatrishvili spoke in detail about how the money creation process works in modern monetary economies. It was noted that money is created when the banking sector increases lending, as well as when the state increases deficit spending, whether financed by a domestic debt or a foreign debt. The presentation demonstrated the role of central banks in this process. Shalva Mkhatrishvili explained to the seminar participants that, while money created by bank lending or state’s deficit spending is in the form of deposits, when those deposits are converted into cash then demand for central bank liquidity arises. It’s by changing the price of liquidity supply (interest rate) that central banks then influence lending and, consequently, monetary aggregates.

 

 

During the discussion, Shalva Mkhatrishvili touched upon a number of misconceptions about money supply, including those about refinancing loans from a central bank. The seminar ended with a Q&A session.

The presentation slides used during the seminar are available on the following link.