Purpose

The primary goal of the below crosswalk is to provide a simpler way to understand the impacts of balance sheet operations conducted by the two types of monetary institutions (central banks and commercial banks) that create and delete money (reserves and deposits, respectively). The crosswalk enables the reader to quickly translate balance sheet operations by each of these entities into balance sheet impacts on the other. This is important because, for example, the creation of reserves sometimes creates deposits simultaneously, while in other cases it does not.

A second goal is to give researchers a more complete way of empirically interpreting modulations in the money supply. For example, when bank deposits dropped steeply in 2023 it was possible to find seemingly contradictory articles explaining the decline. Only a few articles acknowledged that there are many monetary transactions that could be explaining the declines because there are many things that create and delete deposits. (This article is somewhat exceptional in acknowledging and analyzing five monetary transactions contributing to the decline in deposits.) The Monetary Crosswalk reveals that there are at least twelve monetary transactions that create deposits and twelve that delete deposits. Therefore, a thorough empirical account of the 2023 deposit decline would require analyzing the gross flows of all twenty-four transaction types to determine which were contributing the most to the overall decline. The below table can help researchers in checking their work to ensure that they are not leaving any important transaction types out of their analysis of changes to deposits or reserves.

Evidence

To the maximum extent possible, I have tried to ensure that the entries in this table are supported by one or more published T-Account representations. T-Account representations for the majority of the entries in the table at present can be found in my accompanying Monetary T-Account Index. I try to keep the links in the crosswalk up to date so that you can simply click a transaction type and be taken to the corresponding T-Account. If you find a mistaken link, please let me know.

Credits

This crosswalk was developed by Sam Hummel, a graduate student at Duke University studying monetary system designs and their the impact on social equity and sustainability. Benjamin Whitehurst, MBA at North Carolina State University, assisted in gathering and organizing T-account evidence and checking Sam’s work. The crosswalk is inspired by a reference table published by Dr. Yougui Wang and Dr. Boyao Li which showed all the accounting operations that created or deleted bank deposits. In correspondence, we began developing an additional reference table for the accounting operations that create and delete central bank reserves. The matrix below combines and expands on those two tables.

Index of Abbreviations

QE = Quantitative Easing

QT = Quantitative Tightening

BE = Balance sheet expands

BC = Balance sheet contracts

E2L = Equity converts to liability (e.g., deposits and bonds)

L2E = Liability (e.g., deposits and bonds) converts to equity

LT = Liability transformation (deposit liabilities transform into another bank liability, such as bonds, and vice versa)

OMO = Open Market Operations

Accounting Operations that Create and/or Delete Central Bank Reserves and/or Bank Deposits

Note: Different colors have been used to identify pairs of creation/deletion operations, such as loan origination / loan repayment and Treasury expenditure / Treasury tax collection. Further research is needed for items not yet given a color.

• Central bank purchases of Treasuries or other financial assets from non-bank. (QE) (OMO)
• Central bank Repo purchase from non-bank. (OMO)
• Deposit of currency at a bank. (BE)

| | - Bank loan to non-bank. (BE)

• Bank customer draw on line of credit, including credit cards (BE)
• Bank bond purchase from a non-bank seller. (BE)
• Bank purchases of equities from non-bank seller. (BE)
• Bank redemption of bank’s own bonds. (LT)
• Bank dividend payment. (E2L)
• Bank pay-out of interest. (E2L)
• Bank purchase of real estate, goods and services from non-banks. (E2L)
• USD to Eurodollar payment (creates Eurodollar deposits in foreign bank) | | Deletes Deposits | | - [Central bank sales of Treasuries or other financial assets to a non-bank buyer. (QT)
• Treasury collection of taxes from non-banks.](https://economicsofwellbeing.notion.site/Monetary-T-Account-Index-Creation-and-Deletion-of-Deposits-Reserves-on-Bank-and-Central-Bank-Bala-afec0e242f414ae8b2448cb133209e63)
• Withdrawal of currency from a bank. (BC)
• Bank-issued Repos (?)
• Central bank reversals of Repos purchases | - Repayment of bank loan principal. (L2E)
• Bank customer line of credit repayment, including credit cards (BC)
• Bank sales of other’s bonds. (BC)
• Bank sale of other’s equities. (BC)
• Bank issuance of own bonds. (LT)
• Bank issuance of own equity. (L2E)
• Collection of loan interest. (L2E)
• Bank sales of real estate, goods and services to non-banks (L2E)
• Eurodollar to USD payment (deletes Eurodollar deposits in foreign bank) | | No Change to Deposits | - Central bank purchase of FX assets.
• Central bank purchase of Treasuries and other financial assets from a bank.
• Central bank loan to bank via discount window.
• Treasury purchase of goods and services from a bank.
• Bank sale of vault cash to central bank | - Central bank sale of FX assets.
• Central bank sale of Treasuries and other financial assets to a bank.
• Repayment of central bank loan by a bank.
• Treasury collection of taxes from bank.
• Bank purchase of vault cash.

| - Intrabank payment

• Non-bank loan
• Interbank payment (domestic)
• Interbank loan of reserves
• Bank purchase of assets from another bank
• Write-off / Charge-off of Bad Bank Loan There are many additional accounting operations that neither create nor delete deposits and reserves. We will not itemize them here because the focus of this table is money creation and deletion. |