Money creation in the modern economy

https://public.worldfreemansociety.o...ernEconomy.pdf

By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.

Quarterly Bulletin 2014 Q1

• This article explains how the majority of money in the modern economy is created by commercial
banks making loans.
• Money creation in practice differs from some popular misconceptions — banks do not act simply
as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’
central bank money to create new loans and deposits.
• The amount of money created in the economy ultimately depends on the monetary policy of the
central bank. In normal times, this is carried out by setting interest rates. The central bank can
also affect the amount of money directly through purchasing assets or ‘quantitative easing’