How Do Banks Create Money?


Naked Capitalism has posted the article How Do Banks Create Money?

How do banks create money? Banks can create money easily but how safe is it for them to do so and can they go bust?


I would argue that we stop saying private banks create money and just say that private banks create promises of money. The difference between what private banks create and what the central bank creates is that the central bank only promises to give you what they create in exchange for what they create. Private banks promise to give you what the central banks create in exchange for what the private banks create.

Let’s stop creating confusion by using the same word for what private banks create and what the central bank creates.

I have checked this with Warren Mosler, and he hates my idea. I hope he sees this video.

Here are some of the previous posts where I have made this argument.

Leave a comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.