A glossary of terms for the feature documentary "Princes of the Yen: Central Banks and the Transformation of the Economy." (Compiled by the filmmakers - a work in progress)
Balance of Trade: The difference between a country's imports and its exports. Balance of trade is the largest component of a country's balance of payments.
Balance of Payments: Balance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world. When all components of the BOP accounts are included they must sum to zero with no overall surplus or deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counterbalanced in other ways – such as by funds earned from its foreign investments, by running down central bank reserves or by receiving loans from other countries.
Capital Account: The capital account reflects net change in ownership of national assets. A surplus in the capital account means money is flowing into the country, but unlike a surplus in the current account, the inbound flows will effectively represent borrowings or sales of assets rather than payment for work. A deficit in the capital account means money is flowing out the country, and it suggests the nation is increasing its ownership of foreign assets.
Consumer Price Index: A measure that examines the changes of prices of a basket of consumer goods and services. Changes in CPI are used to assess price changes associated with the cost of living.
Corner a Market: To acquire enough shares of a particular security type, such as those of a firm in a niche industry, or to hold a significant commodity position so as to be able to manipulate its price.
Credit: Can refer to someone extending a loan, i.e. trusting that someone else will repay at some point in the future. Some people refer to banks creating credit as being the same as banks creating money, but a non-bank can extend credit without creating money.
Credit Controls: See Window Guidance.
Credit creation: In banking terms refers specifically to the creation of a bank loan and a bank deposit in tandem. The bank deposit can be used to make payments, and therefore functions as money.
Credit Cycle: The credit cycle is the expansion and contraction of access to credit over time.
Currency Peg: A fixed exchange-rate system, also known as a pegged exchange rate system, is a currency system in which governments try to maintain their currency value constant against one another. In a fixed exchange-rate system, a country’s government decides the worth of its currency in terms of either a fixed weight of gold, a fixed amount of another currency or a basket of other currencies.
Current Account: It is the sum of the balance of trade (i.e., net revenue on exports minus payments for imports), factor income (earnings on foreign investments minus payments made to foreign investors) and cash transfers.
Deflation: Deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate).
Devaluing Currency: A reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged.
Dollar Gold Standard: A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold.
Fiscal Policy: Fiscal policy is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy.
Fiscal Stimulation: An increase in public spending or a reduction in the level of taxation that might be performed by a government in order to encourage and support economic growth.
Fixed Exchange Rate: See Currency Peg.
Foreign Exchange Reserves: Also called forex reserves or FX reserves are assets held by central banks and monetary authorities, usually in different reserve currencies, mostly the United States dollar, and to a lesser extent the euro, the Chinese yuan, the United Kingdom pound sterling, and the Japanese yen, and used to back its liabilities. When a country runs out of reserves it is deemed insolvent.
Free Market Economy: A market economy is an economy in which decisions regarding investment, production and distribution are deemed to be based on supply and demand, and prices of goods and services are deemed to be determined in a free price system. The major defining characteristic of a market economy is that decisions on investment and the allocation of producer goods are said to be mainly made through markets. This is contrasted with a planned economy, where investment and production decisions are embodied in a plan of production.
Interest Rates: See Official Discount Rate.
International Imbalances: See Trade Imbalances
Loan Quota Allocation: See Window Guidance.
Monetary Easing: When a central bank increases the money supply as a means to stimulate economic activity.
Monetary Policy: Is the process by which the monetary authority of a country controls the supply of money.
Monetary Tightening: When a central bank reduces the money supply as a means to slow growth or induce a recession.
Money Illusion: The phenomenon in which prices do not reflect monetary changes.
Moral Hazard: A situation where a party will have a tendency to take risks because the costs that could result will not be felt by the party taking the risk.
Non-GDP Loan: A loan, which is not used for the production of goods or services.
Non-productive Lending: A commercial bank loan which does not directly increase the economy’s output, even though it may increase the total spending power in the economy.
Official Discount Rate: The interest rate charged to commercial banks and other depository institutions for loans received from the Central Bank’s discount window.
Systemic Risk: The risk of collapse of an entire financial system or entire market, as opposed to risk associated with any one individual entity, group or component of a system.
Window Guidance: A persuasion tactic used by an authority (i.e.The central bank) to influence and pressure, but not force, banks into adhering to policy. In Japan, the Bank of Japan used this tactic to “dictate” to banks, the quantity of loans and which industrial sectors they should be allocated to.