Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits. “Money creation in the modern economy” – this (open access) mind-boggling article written by economists from the Bank of England explains how the majority of money in the modern economy is created by commercial ‪banks‬ making loans or buying an asset from consumers. The article then discusses the limits to the banking system’s ability to create money and the important role for central bank policies in ensuring that ‪credit‬ and money growth are consistent with monetary and financial stability in the economy.

A short video explains the key topics covered in this article