Money creation in the modern economy (2014) [pdf]

Most people are unaware of the true mechanism of money creation, therefore don't understand how the current mechanism and its (lack of) constraints affect society, therefore don't see the potential for societal improvement through systemic change around money creation and allocation. Prof Richard Werner is worth listening to on this topic. [1] I'd also recommend Steve Baker's heroic speech in UK parliament. [2] [1] https://youtu.be/9bQkfN_pe44 [2] https://youtu.be/bXOkmD8Eozs

From the conclusion: > This article has discussed how money is created in the modern economy. Most of the money in circulation is created, not by the printing presses of the Bank of England, but by the commercial banks themselves: banks create money whenever they lend to someone in the economy or buy an asset from consumers. And in contrast to descriptions found in some textbooks, the Bank of England does not directly control the quantity of either base or…

There has been some discussion recently about financial systems on HN, where people were arguing that banks can't just create money, and some myths about reserve requirements and so on. In the link is the article from Bank of England. It's not me saying it. Straight from a central bank of UK. On the very first page: > Whenever a bank makes a loan, simultaneously creates a matching deposit in borrower’s bank account, thereby creating new money. Later: > And…

This is how money creation works in textbooks. Not how it works in real world. Fractional reserve banking as instrument for money creation has lost it's effectiveness during 2000s. This has not been how major central banks create money a some time and is not likely to come back in foreseeable future either. Instead of going trough savings accounts, all major central banks use open market operations to create money.