A

B

C

D

E

Created Money

In Mⁿ,s

Foreign Currency

M₁ converted to

$M₂

Value of $M₂ transferred and stored in M₁

Gov’t separates $M^M_1,2 from its treasury (λ)

M₁

$M₂

$M^M

$M^M_1,2

(λ) − ($M^M_1,2)