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Bank of England: Money in the modern economy: an introduction

This bulletin provides an introduction to the role of money in the modern economy. It does not assume any prior knowledge of economics before reading. The article begins by explaining the concept of money and what makes it special. It then sets out what counts as money in a modern economy such as the United Kingdom, where 97% of the money held by the public is in the form of deposits with banks, rather than currency. It describes the different types of money, where they get their value from and how they are created.

 Money in the modern economy: an introduction (PDF, 531KB)

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Bank of England: Money creation in the modern economy

This paper describes the process of money creation in detail, and discusses the role of monetary policy and the central bank in that process.

  • This article explains how the majority of money in the modern economy is created by commercial banks making loans.
  • 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.
The article dispels a number of misconceptions about how Quantitative Easing works:
  • Just as in normal times, the reserves created by QE cannot be ‘multiplied up’ into additional loans and deposits.
  • Nor can reserves be directly lent out, since only commercial banks hold reserves accounts.

 Money creation in the modern economy (PDF, 111KB)

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Money creation in the modern economy

In this video filmed in the vaults of the Bank of England, Ryland Thomas, author of ‘Money creation in the modern economy’ explains where money comes from.

 “Loans create deposits not the other way round.” 


European Central Bank:
What is money?

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IMF working paper: Chicago Plan Revisited

A reform proposal that would eliminate the banking system’s ability to create money


More about

Download pdf, 70 pages

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Michael Kumhof – The Chicago Plan Revisited

Deputy Division Chief, Modeling Division, Research Department, International Monetary Fund and Co-author of the ‘Chicago Plan Revisited’ gives a lecture on “The Chicago Plan Revisited” at the London School of Economics in November 2013

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Conference “Fixing the Banking System for Good”

17th April 2013, Philadelphia, USA

Lord Adair TurnerFormer Chairman of the UK Financial Services Authority, Michael KumhofDeputy Division Chief, Modeling Unit, Research Department, International Monetary Fund and some other big senior figures in the economic, monetary, and financial worlds discussing ending fractional reserve banking 


Lord Adair Turner

Former Chairman of the UK Financial Services Authority:

Escaping The Addiction to Private Debt Is Essential for Long-Term Economic Stability (Frankfurt, 10th Feb 2014)

It’s private debt that got us into this mess (interview on BBC Radio 4 ‘World One”, 30th Dec 2013)

Credit, Money and Leverage (VIDEO) (Stockholm, 12 Sep 2013)

Private Debt and Fiat Money: Lessons from the crisis and from some old economic texts” (INET Conference, Hong Kong, Apr 2013)

“Debt, Money and Mephistopheles: How do we get out of this mess?” (LSE, London, 6th Feb 2013)

Monetary and Financial Stability: Lessons from the Crisis and from classic economics texts (South African Reserve Bank, 2nd Nov 2012)  

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Economic Science and the Debt Crisis

A documentary by the Swedish public broadcaster SVT

Interviews with a.o.:
– Joseph Stiglitz (Columbia University)
– Steve Keen (University of Western Syndey)
– Dirk Bezemer (University of Groningen)
– Michael Kumhof (IMF)
– Robert Lucas (University of Chicago)
– Stefan Ingves (Swedish Central Bank)
– Jörg Asmussen (ECB)

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Tony Greenham – Can central banks really control money creation?

Tony Greenham, Head of Finance and Business at New Economics Foundation discusses this question at Monetary Policy Seminar, 13th Nov 2013.

“Monetary policy is ineffective in controlling quantity of money.”

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Prof. Herman Daly – Former World Bank Economist on Full Reserve Banking

Herman Edward Daly is an American ecological economist and professor at the School of Public Policy of University of Maryland, US. He was Senior Economist in the Environment Department of the World Bank.

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Prof Herman Daly on Modernising Money

Prof Emeritus and former Senior Economist at the World Bank, Herman Daly, gave a pre-recorded message for the 3rd annual Positive Money Conference 2013 “Modernising Money”.


Why don’t Economists understand money?

Prof Victoria Chick, Emeritus Professor of Economics, University College London, addressed this question at the Positive Money conference in January 2013. This 18 minute video gives some very interesting insights.  

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Privatised gains and socialised losses

Professor Richard Werner, presenting at the Transforming Finance 2013 conference in London, explains that we are entirely dependent on banks’  actions because they create and distribute 97% of the  money supply. Who gets money and for what purpose  matters, because this shapes our economy. 

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Prof. Richard Werner – How to Make Banks Socially Useful

Prof Richard Werner, Director of the Centre for Banking, Finance and Sustainable Development, University of Southampton, author of “New Paradigm in Macroeconomics” gave a talk at Just Banking Conference 2012.

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Six Myths About Money & Banking – Josh Ryan-Collins

Josh Ryan-Collins, Senior Researcher at the New Economics Foundation and co-author of “Where does money come from?”,  explains how banks create money, out of thin air, through the accounting process they use when they make loans.

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Influence of Banking on Growth and Instability

Josh Ryan Collins of the New Economics Foundation, speaking at Just Banking Conference on 20th April about the banking system, and its influence on growth and financial instability.  

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