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Distinction Between M-oz. and R-oz.

I have used the terms M-oz. and R-oz. for very specific reasons in this presentation.

I believe that a lot of people get confused about the process of artificial money creation because of the use of the word dollar to describe two very different media of indirect exchange.

These two media consist of:

1. Bank deposit dollars, which I refer to as money dollars. (a liability for banks)
2. Bank reserve dollars, which I refer to as reserve dollars. (an asset on banks balance sheets and a liability on the balance sheet of the Federal Reserve)

The dollars represented by bank deposits fit all the qualifications of the definition of money given previously. They have the same influence in the economy as one would expect from money. Most important, with respect to the distinction between money dollars and reserve dollars, bank deposit liabilities are generally accepted in all segments of the economy.

The dollars represented by bank reserves, although also a medium of indirect exchange, have a very restricted use in our economic system. They cannot be owned by or used by any participants in the economy other than the Federal Reserve and its member banks. The limited use of reserve dollars disqualifies them as a form of money.

In this presentation I have used ounces as the unit of measure in place of dollars for the sake of the example. To maintain the distinction between reserves and deposits, which I described above, I have used the terms M-oz. to designate money ounces and the term R-oz. to designate reserve ounces.

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