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    Banks and money


    Banks do not create money out of thin air
    Pontus Rendahl, Lukas B. Freund 14 December 2019

    In recent years, some have claimed that banks create money ‘ex nihilo’. This column explains that banks do not create money out of thin air. From an economic viewpoint, commercial banks create private money by transforming an illiquid asset (the borrower’s future ability to repay) into a liquid one (bank deposits); they would quickly be insolvent otherwise. In addition to bank solvency representing a constraint on private money creation, banks require access to liquid reserves in order to be able to engage in money creation.
    Most interesting and eye opening .....
    Last edited by shikamaru; 05-30-21 at 01:06 PM.

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