QuestionHow is the amount of banknotes to be issued decided?
The amount of banknotes issued depends on the level of demand for banknotes in the economy.
The demand for banknotes rises when, for example, there is increased economic activity, that is, when people spend more and firms increase small-value transactions. Banknotes are financial assets with an extremely high degree of safety and liquidity, even though they earn no interest. Therefore, demand for banknotes can also be affected by factors such as yields on other financial assets and developments in the financial system.