How Euros (€) are born - and what that could mean for Blockchain Money / Centrality - The Decentralized Ethereum based DApps Platform

How are Euros created? What is the difference between central bank money and book money? Can you compare the European Central Bank to a miner? And how does the Lightning Network relate to banking? So many questions. Time to look for some answers.

I have written here a few times how the monetary units of digital currencies are created. By Miner (PoW), Staker (PoS), Delegated Staker (PDOS) or by Original Issue (ICO). What I have not written about is how conventional money like Euro are created.

The topic is a bit tricky, and I'm not an expert, but after doing a bit of research, I think I have some clarity. Incidentally, the information pages of the Bundesbank were particularly helpful here.

The ECB as Imperial Miner
In itself, this question is quite simple to answer: Euro in the pure sense can only produce the European Central Bank (ECB). It is the top and only euro miner and almost all the money in circulation is a kind of debt to the ECB. The feudal social order, in which every landed property was a "fief" - that is, a loan - of the emperor, is still somewhat echoing here. In the system of European banks, the ECB therefore takes the position of the imperial court.

In order to create money, the ECB grants a so-called sight deposit for so-called central bank money to a bank. Central bank money is by itself the only real virtual money, and a sight deposit can be thought of as an entry in a bankbook like the Bitcoin blockchain. One could say that the blockchain of central bank money is double-restricted: only the central bank may mine, and only the banks are allowed to execute transactions.

Like the Bitcoin miners, the central bank creates money out of nothing. Unlike the miners, the central bank can not draw the money for themselves, but only for the banks. To do so, they ask for a return from them: they either have to borrow a loan from the central bank or have to transfer an asset, such as public debt. The bank can use this sight deposit as a minimum reserve for its customers' payments (we'll get to that soon), or it can exchange them for cash to pay out to their customers. The ECB then has banknotes printed and coins minted and delivers them to the bank. Banknote printing is mandated by the national central banks, such as the Bundesbank, at private printers, while coins are stamped by government-owned mints.

When a bank repays a loan from the ECB with central bank money, sight deposits are closed and central bank money is effectively destroyed. This shows perhaps more clearly than anything else that money in itself is based on debt or promises. For some tokens we find this again. Thus, the dollar token Tether are deleted when someone returns them to pay off dollars. Usually, the tokens are eliminated by sending them to an address to which nobody has the key. However, the Ethereum developers are also planning a "kill" feature for ERC20 tokens, which not only effectively destroys tokens, but also reduces the total number of existing tokens.

The central bank money is called the money stock M0 or monetary base. It covers the outstanding cash and sight deposits of banks with the central bank. Currently, it is about 3.1 trillion euros. However, the amount of money actually used is much higher.

The Banks and their Book Money - Sidechains
The largest amount of money creation begins with the banks and runs off similarly as with the central bank: The banks give their customers a loan and write this as newly created so-called book money on its account. The banks can not do this indefinitely. They require a minimum reserve of central bank money in an ECB account of one percent of the book value. If a bank has one million euros in central bank money, it can credit its clients with 100 million euros.

This book money is obviously not equivalent to the real central bank money. However, since the bank guarantees that it will change the book money into banknotes (like on an the ATM), and since it is accepted almost everywhere as a mean