The role of bank deposits in Modern Monetary Theory


Bill Mitchell’s blog has the article The role of bank deposits in Modern Monetary Theory.

You can read this article and still be confused by the word play. I think this sentence in the conclusion settles it for me.

Deposits do not fund loans. But they are one source of funds that the bank has available to ensure that its role in the settlement process is not compromised which would require borrowing from the central bank.

I get a lot of pushback from people who have read about MMT when I try to make the above point. Mitchell’s article discusses the myriad ways that a bank can raise the money it needs. He discusses the different costs that a bank might incur by employing any of these methods. That discussion leads to the above concluding sentence mentioning two of the alternative methods.

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