> Where and how do "non-central" banks print money?
"If you borrow £100 from the bank, and it credits your account with the amount, ‘new money’ has been created. It didn’t exist until it was credited to your account.
This also means as you pay off the loan, the electronic money your bank created is 'deleted' – it no longer exists. You haven’t got richer or poorer. You might have less money in your bank account but your debts have gone down too. So essentially, banks create money, not wealth.
Banks create around 80% of money in the economy as electronic deposits in this way. In comparison, banknotes and coins only make up three percent. Finally, most banks have accounts with us at the Bank of England, allowing them to transfer money back and forth. This is called electronic central bank money, or reserves."
TL; DR Through borrowing. The process is regulated, but not centrally controlled.
That £100 that is loaned out, hasn't appeared from the ether, its my £100 that I deposited. In some real sense I no longer have £100, I have a promise to pay me £100. So I have £100 in wealth, you have £100 cash, which is a subset of wealth. The existence of bank runs would seem to prove that I no longer have £100 cash, and that banks can't create money.
Further, the whole idea of capitalism and banking is that people who need money can borrow it to create things that generate wealth. Banks are the conduits to get money from the cash rich, to those who can best use it. If that £100 loan ends up making a better widget, has not the bank in some way generated wealth?
No, the Bank or England is not confused about how central banking works.
TL; DR Banks don’t lend out deposits. Deposits are created through loans. Reserve requirements limit the rate of loan creation after the fact. Runs happen when depositors stop trusting the numbers created by a specific bank because they don’t think the bank will meet its reserve requirement at the end of the day.
"Runs happen when depositors stop trusting the numbers created by a specific bank because they don’t think the bank will meet its reserve requirement at the end of the day."
I don't think that makes any sense as a categorical statement.
If a bank is short of reserves, but is solvent, then there's no need to panic. Or if it's insolvent, but you know the FDIC will make you whole. The case where you rationally try to get your money out before other people is when you either know that there will not be enough in total assets for everyone in the long run, or you cannot afford to wait for a liquidity crisis to be over.
No I don't think the BoE is wrong either. What they've stated doesn't seem to fit with my understanding, and what you've said hasn't really clarified things.
> That £100 that is loaned out, hasn't appeared from the ether, its my £100 that I deposited.
It's not. It's hard to believe at first but the bank just write +£100 in your account and that's essentially it. The bank can loan £100 before you deposit them. The £100 you deposited were loaned to your employer by another bank.
The deposits don't fuel the loans, the loans fuel the deposits.
I've seen this repeated a few times. Does it stem from the Credit theory of money?
"The fractional reserve theory where the money supply is limited by the money multiplier has come under increased criticism since the financial crisis of 2007–2008. It has been observed that the bank reserves are not a limiting factor because the central banks supply more reserves than necessary and because banks have been able to build up additional reserves when they were needed. Many economists and bankers now realize that the amount of money in circulation is limited only by the demand for loans, not by reserve requirements."
If so, isnt it more the case that that deposit had just been waiting around waiting for someone wanting credit.
If you are literally saying the money comes from the ether, why even let people make deposits at all. If you can create money you can pay 0% interest on it, rather than the 1/2/3% that I'd demand, and you wouldn't have to worry about bank runs either.
From what I can gather its more of a model, than a literal truth. If you apply for a loan from $bankx then they will tell your $banky to increase your balance by $100. That is all electronic and basically an article of faith between the banks, no gold bullion gets transferred or whatever. Ultimately it does need to be grounded in reality somewhere. I can't set up $bankz and just start making $100 trillion worth of loans backed with nothing but a banking licence.
"If you borrow £100 from the bank, and it credits your account with the amount, ‘new money’ has been created. It didn’t exist until it was credited to your account.
This also means as you pay off the loan, the electronic money your bank created is 'deleted' – it no longer exists. You haven’t got richer or poorer. You might have less money in your bank account but your debts have gone down too. So essentially, banks create money, not wealth.
Banks create around 80% of money in the economy as electronic deposits in this way. In comparison, banknotes and coins only make up three percent. Finally, most banks have accounts with us at the Bank of England, allowing them to transfer money back and forth. This is called electronic central bank money, or reserves."
TL; DR Through borrowing. The process is regulated, but not centrally controlled.
https://www.bankofengland.co.uk/knowledgebank/how-is-money-c...