a column by Pontus Rendahl and Lukas B. Freund for VOX: CEPR’s Policy Portal
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.
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Showing posts with label money_creation. Show all posts
Showing posts with label money_creation. Show all posts
Thursday, 19 December 2019
Sunday, 3 December 2017
How the actual magic money tree works
an article by Zoe Williams published in the Guardian
85% of MPs were unaware that new money is created every time a bank extends a loan. Were you?
A licence to print … 70% of MPs thought that only the government had the power to create new money. Photograph: Bank of England/PA
Shock data shows that most MPs do not know how money is created. Responding to a survey commissioned by Positive Money just before the June election, 85% were unaware that new money was created every time a commercial bank extended a loan, while 70% thought that only the government had the power to create new money.
The results are only a shock if you didn’t see the last poll of MPs on exactly this topic, in 2014, revealing broadly the same level of ignorance. Indeed, the real shock is that MPs still, without embarrassment, answer surveys.
Yet almost all our hot-button political issues, from social security to housing, relate back to the meaning and creation of money; so if the people making those choices don’t have a clue, that isn’t without consequence.
Continue reading
85% of MPs were unaware that new money is created every time a bank extends a loan. Were you?
A licence to print … 70% of MPs thought that only the government had the power to create new money. Photograph: Bank of England/PA
Shock data shows that most MPs do not know how money is created. Responding to a survey commissioned by Positive Money just before the June election, 85% were unaware that new money was created every time a commercial bank extended a loan, while 70% thought that only the government had the power to create new money.
The results are only a shock if you didn’t see the last poll of MPs on exactly this topic, in 2014, revealing broadly the same level of ignorance. Indeed, the real shock is that MPs still, without embarrassment, answer surveys.
Yet almost all our hot-button political issues, from social security to housing, relate back to the meaning and creation of money; so if the people making those choices don’t have a clue, that isn’t without consequence.
Continue reading
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