The credit extended by the central bank is the expansion credit of the banking system and the foundation of the creative school, so it is called "base currency", which is the sum of the cash in issue and the reserve funds deposited by the bank in the central bank. Generally speaking, the central bank carries out monetary liabilities. The central bank will also use its own currency issuance right and credit management right to run the demand for credit funds, thus creating the source of credit funds.
The extended database currency has the following characteristics.
1 is the debt of the central bank, which is highly liquid and the most active part of all currencies.
2. It is a derivative product, which can generate several times the income of its own currency. With controllability, the central bank can control the money supply through control.
3. The base currency mainly includes cash on hand, reserve deposits and cash held by the public. Base currency = various deposit reserves+cash+statutory reserves+excess reserves+cash on hand in the banking system+cash held by the public.
In the era when gold was separated from commodity exchange and the government issued money with complete gold as guarantee, money was exchanged on the basis of its intrinsic value, which was not only people's theoretical understanding, but also the reality of economic operation at that time. In the case that there is no M-full gold guarantee or even no gold guarantee in the issuance of paper money, it is obviously out of date to insist on currency exchange as its intrinsic value.
References:
Baidu Encyclopedia-Base Currency