How We Got Here

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Laws that make it illegal for you to print your own £5 or £10 notes have been in place since 1844. But when these laws were passed, they  overlooked the fact that money can also exist in the form of bank deposits (the numbers in people’s bank accounts). Because of this oversight, banks now have the power to create money through a simple accounting entry. As a result, today almost all money exists as electronic bank deposits, and is created when banks make loans.

A Short History of Money in the UK

Two centuries ago, only the government was legally allowed to create metal coins. But trying to keep metal coins safe or carrying them around was inconvenient, so people would typically deposit their coins with the local jeweller or goldsmith, who would have a safe. Eventually these goldsmiths started to focus more on holding money and valuables for customers than on actually making jewellery. They became the first bankers.

A customer putting coins into the new ‘bank’ would be given a piece of paper stating the value of coins deposited, a little like the one on the left. If the customer wanted to spend his money, he could take the piece of paper to the bank, get the coins back, and then spend them in the local shops.

However, the shopkeeper who received the coins would usually take them straight back to the bank for safety. To save a trip to the bank, shopkeepers would simply accept the paper receipts as payment instead. As long as people trusted the bank that issued the receipts, businesses and individuals would be happy to accept the receipts, safe in the knowledge that they would be able to get the coins out of the bank whenever they needed to.

Over time, the paper receipts became accepted as being as good as metal money. People forgot that they were just a substitute for money and saw them as being equivalent to the coins.

Screen Shot 2013-05-06 at 12.23.26The goldsmiths soon noticed that the bulk of the coins placed in their vaults were never taken out. Only a small percentage of deposits were ever asked for at any particular time. This opened up a profit opportunity – if the bank had £1,000 of coins in the vault, but customers only withdrew a maximum of £100 on any one day, then the other £900 in the vault was spare. The goldsmith could lend out that extra £900 to borrowers, and make a profit by charging interest on the loan.

However, rather than lend the coins, the goldsmiths would write out new paper receipts for borrowers. This meant that the bank could issue paper receipts to other borrowers without needing many – or even any – coins in the vault. With only £1,000 of coins in the vault the bank could lend out £2,000, £4,000 or as much paper money as it dared too. (Of course, the banks still faced some restrictions – if too many people came to get their money back at the same time then it would be obvious that the bank didn’t have enough money to repay everyone.)

The banks had acquired the power to create a substitute for the metal money created by the government. In effect, they had acquired the power to create money.

1844 Bank Charter Act

Screen Shot 2013-05-06 at 12.21.01The hunt for profit drove banks to issue and lend too much paper money. This increased the amount of money in the economy, pushing up prices and de-stabilising financial markets. (One crisis was particularly embarrassing for the Bank of England – in 1839 it had to borrow £2 million of gold from France to rescue failing banks).

In 1844, the government of the day, led by Sir Robert Peel, realised that they had allowed the power to create money to slip into the hands of banks. They passed a law to take back control over the creation of bank notes. This law, the Bank Charter Act, prohibited the private sector from (literally) printing money, transferring this power to the Bank of England.

The Flaws in the Law

Screen Shot 2013-05-06 at 12.26.05However, the 1844 Bank Charter Act only stopped the creation of paper bank notes – it didn’t refer to other substitutes for money, such as bank deposits. Because of this oversight, banks could still create ‘bank deposits’ by making loans – and so they could still create money simply by opening accounts for people or companies and adding numbers to them. With growth in the use of cheques these deposits could be transferred to make payments, and therefore used as money. When a cheque is used to make a payment, no cash is withdrawn from the bank. Instead, the paying bank talks to the receiving bank to settle any differences between them once all customers’ payments in both directions have been cancelled out against each other. This means that payments can be made even if the bank has only a fraction of the money that depositors believe they have in their accounts. However, despite the rise of cheques, cash was still used for a large proportion of transactions, and so banks were limited in the amount of money they could create in case they ran out of physical cash.

And then there were computers…

Screen Shot 2013-05-06 at 12.28.18Following on in the spirit of financial innovation, after cheques came credit and debit cards, electronic fund transfers and internet banking. Cheques are now irrelevant as a means of payment: today over 99% of payments (by value) are made electronically. With the rise of computers and financial deregulation beginning in the 1970s, banks could really let loose. The following charts show how much money (in green) the banks created, relative to the amoun t of government-created money (in red):

Even those who know that banks are able to create money often assume that banks are obliged to possess a sum corresponding to a significant fraction of their liabilities (their customers’ deposits) in liquid assets (i.e. in cash, or a form that can be rapidly converted into cash). In fact, such laws were weakened in the 1980s in response to lobbying from the industry (although some effort is now being made to re-impose such rules in the aftermath of the crisis).

The situation today

The electronic numbers in your bank account do not represent a specific pile of cash with your name on it. They simply give you a right to demand that the bank gives you physical cash or makes an electronic payment on your behalf. In fact, if you and a lot of other customers demanded your money back at the same time (a bank run) it would soon become apparent that the bank does not actually have your money. For example, on the 31st of January 2007 banks held just £12.50 of reserve money (in the form of electronic money held at the Bank of England) for every £1,000 of deposits in their customers’ accounts.

Screen Shot 2013-05-06 at 12.32.58Deposit money now makes up over 97% of all the money in the economy – around £2.1 trillion, compared to only £60 billion of cash.1 By value of payments, bank deposits are used for 99.91% of transactions and transfers, with cash being used for just 0.09% of transfers2. Consequently, the physical currency issued by the state has been almost entirely replaced by a digital currency issued by private companies. The UK’s money supply has been effectively privatised.

NEXT:Watch our Banking 101 Video Course to learn how banks create money, or discover how we can stop them creating money.

The notes found in Scotland from RBS, Bank of Scotland and Clydesdale Bank, and those in Northern Ireland, are essentially re-branded versions of UK bank notes. The Bank of England prints a £1 million or £100million note, lends or sells it to the Scottish or Northern Irish banks, and they then print equivalent notes in smaller denominations with their own branding. More info available at the Bank of England site.


1. See data series LPQAUYM and LPMAVAA from the Bank of England’s Interactive Statistical Database here

2. Bank of England Payment Systems Oversight Report 2008, available here

Learn More


Bank of England - Money Creation in the Modern Economy

The Proof

The way that money is taught in universities is often very inaccurate. These papers and sources from central bankers and other experts show how the system really works.


How Much Money Have Banks Created?

From the time when the Bank of England was formed in 1694, it took over 300 years for banks to create the first trillion pounds. It took them only 8 years to create the second trillion.

The Technical Details

Banking 101

Video Course: Banking 101

This free animated video course (total 57 minutes) explains how the modern banking system creates money, and what limits how much money banks can create.

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Advanced: All the technical details

This section covers all the nitty-gritty details of money creation by banks. We cover the three types of money, how balance sheets work, how central and commercial banks create – and destroy – money and what is wrong about the textbooks taught in universities. Read more…



Book: Where Does Money Come From?

“Refreshing and clear. The way monetary economics and banking is taught in many – maybe most – universities is very misleading and this book helps people explain how the mechanics of the system work.”

Professor David Miles, Monetary Policy Committee, Bank of England

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Book: Modernising Money

Why our monetary system is broken, and how to fix it. 

“Money is a social invention, indeed among the most important of all social inventions. At present the right to create money has been handed over to the private businesses we call banks. But this is not the only way we could create money and, as recent experience suggests, it may be far from the best one. Read this book with an open mind and you will understand why.”

– Martin Wolf, Chief Economics Commentator, Financial Times

Further Resources

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Papers and videos from:

  • The Bank of England
  • The International Monetary Fund
  • Lord Adair Turner, former chairman of the UK’s Financial Services Authority
  • Other professors and experts in the monetary system

Find out more

Stay in touch

  • eric

    I learned about money a couple of years ago and have had incredulous exchanges with a few people who I have tried to explain it to. It’s just too big of a deception for most people to accept. Hopefully a visit to your site will open some eyes (and minds)

  • angstor

    I have to say that I disagree with the very first section; specifically that it is an ‘oversight’ that allows banks to print money electronically. In fact the law regarding forgery and counterfeiting has been altered. Specifically the 1981 Forgery and Counterfeit Act, which abolished the 1913 Forgery Act. If you take a look at the changes made it becomes apparent that the only truly material change is the specifying of counterfeiting of money to encompass only physical money. Under the 1913 act it would have been possible to bring a case of counterfeiting against money creation through book-keeping entry. The timing is…interesting, is it not? Just as the banks were being aggressively de-regulated?

    • Toby Fernsler

      This would be a good point if they were talking about the United States of America.

  • Tbu Yus

    Hi I was at tonight’s Bristol PM Meeting where we were discussing the money multiplier myth – on reserve ratios. We felt it would be helpful to know the last 3-4 legislative acts that brought the reserve requirement to an end. I’ve spent an hour googling and I can find many quotes that 1981 was the year the requirement was removed all together, but I havent found a) the specific act of paliament that produced this, or b) the previous three instances of legislation where the requirement was decreasing.

    The reason I feel this is important is because; this myth is one of the cognitive blocks to the acceptance that money is created out of nothing in unstable credit/debt pairs at the point of signing loan contracts. If I can present a historical narrative showing the specific acts, and preceding acts that lead up to the abolition of this reserve ratio requirement, it turns the assertion that this is a myth into a referenced fact, with referenced precedents ( a NARRATIVE that helps the target audience contextualise this process – and hopefully REMEMBER/INTERNALISE these events) (along with the legislative/executive actions that caused them). Hence destruction of the myth is achieved through documented historical evidence, NOT ASSERTION and the rather weak evidence of the CONCENSUS online that this reached its final conclusion in 1981.

    Please could someone on the PM team help me locate this evidence!

    • John-the-Duke

      It’s called the Treaty of Rome. That’s why you can’t find a specific Act of Parliament

      • John-the-Duke

        A fuller explanation!

        Prior to Britain joining the Common Market in 1971, the numerical value of the fraction of ‘fractional banking’ was controlled by the UK authorities; about 14:1 or 7%. This attempted to balance the need for low unemployment with minimal inflation. With the movement towards a single currency, the then EEC/EC members were obliged to harmonise their control methods and use interest rates (often referred to as Monetarism) instead.
        The old UK system limited the amount of money in circulation to a multiple of that placed on deposit (saved). The EEC system put no such constraints on the amount of money in circulation, only the price you had to pay for it. This explains how banks have captured so much of the money supply, notwithstanding the trend away from physical money that has taken place at the same time.
        Even the old UK method gave banks the right to charge interest on much of its money supply but the move towards a single currency allowed them to run riot!

        • John-the-Duke

          After more research: –
          Payment of Wages Act 1960
          Repeal of Truck Act 1983

      • John-the-Duke

        If you want to go back earlier, try the abolition of the Truck Act that, until then, obliged all payments to be paid in “Coin of the realm” and the signing away of these rights to have salaries paid directly into a Bank Account ca 1965. I recall that Banks sold this idea to Firms to avoid the cash travelling from banks in security vans being hijacked. At the time I was only interested in being paid so I cannot quote any legislation that permitted it. My suspicion that there was none.

  • Andy Madeley

    I found this a very concise piece and easy to understand. Thanks.

  • Justin Walker

    There are unfortunately some important omissions here – please read this to enlighten yourselves about the current situation, the central banking system: and an obvious solution that is being ignored for some reason

    To all supporters of Positive Money, please be aware that 2016 will see the beginning of a major new push in Great Britain to bring back and restore a sovereign monetary system that is based entirely on the provable truth, historical precedent and simple common sense. This push will completely transform the current debate about money creation and money supply in quite an extraordinary and remarkable way. And it will also spell the end of the global financial and monetary system as we know it, not to mention the debt-creating power and control presently enjoyed by the City of London and their corporate and financial backers….the so-called ‘one-per-cent’!

    Once this sovereign monetary system has been restored, the problems of austerity, the deficit and the national debt will disappear forever leaving the British people prosperous and free from the clutches of the criminal debt-creating bankers and financiers. How? How can all this be achieved? Answer, by simply waking people up to the real and completely provable truth about money creation, the appalling machinations of the central banking system and the historical and extremely successful precedent that was initiated at the outbreak of the First World War.

    Unfortunately, the leading proponents of Positive Money, for whatever reason, have chosen to both completely ignore the organisational set-up and over-riding influence of the central banking system and the ridiculously simple historical precedent which, if brought back today, would transform everyone’s lives for the good. I find this, I have to say, both very sad and very frustrating!

    Now, if you haven’t already done so, please have a good look at Positive Money’s official and extensive website. Do you see any mention of the Bank for International Settlements (BIS)? I’ve looked long and hard and can’t find anything of any meaningful substance. I am completely baffled by this!

    So what is this Bank for International Settlements, I hear you ask? Well, it’s a secretive, very little known and unaccountable privately controlled (by the well established banking dynasties) central bank which enjoys diplomatic immunity and which controls sixty of the world’s central banks (including the Bank of England, the Federal Reserve and the European Central Bank) and which oversees 95% of the world’s GDP and money supply! Not bad for an organisation that hardly anyone in the street has ever heard of – and that includes, I am afraid to say, some, if not many of our elected representatives in the Palace of Westminster!

    Currently, Positive Money advocates the setting up of some sort of central Monetary Policy Committee (that strangely won’t include any of our democratically elected and accountable representatives in Parliament) which will decide on how much money the Bank of England (not HM Treasury) creates for the British economy. That’s right, the British central bank that provably takes its orders directly from the major banking families through the privately controlled Bank for International Settlements, will, if Positive Money succeeds with its campaigning and lobbying, create our money!

    If you don’t believe that I am correct about the Bank for International Settlements, please see what the late and much respected historian Professor Carroll Quigley, mentor to President Bill Clinton and a former trusted ‘insider’ friend to the financial elite, had to say about this shadowy organisation in his 1964 book ‘Tragedy and Hope’:

    “The powers of financial capitalism had another far reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements, arrived at in frequent private meetings and conferences. The apex of the system was the Bank for International Settlements in Basle, Switzerland; a private bank owned and controlled by the world’s central banks which were themselves private corporations. The growth of financial capitalism made possible a centralization of world economic control and use of this power for the direct benefit of financiers and the indirect injury of all other economic groups.”

    But if you are now thinking that the Governor of the Bank of England, Mark Carney, is all powerful when he attends these secretive meetings at the BIS, think again! Professor Carroll Quigley goes on to say:

    “It must not be felt that these heads of the world’s chief central banks were themselves substantive powers in world finance. They were not. Rather, they were the technicians and agents of the dominant investment bankers of their own countries, who had raised them up and were perfectly capable of throwing them down. The substantive financial powers of the world were in the hands of these investment bankers (also called ‘international’ or ‘merchants’ bankers) who renamed largely behind the scenes in their own unincorporated banks. These formed a system of international cooperation and national dominance which was more private, more powerful, and more secret than that of their agents in the central banks…”

    When you hear such compelling evidence as this, it’s not hard to see what’s really going on – that the central banking system is privately controlled and is all powerful when it comes to the creation and control of nearly all of the world’s money supply as debt. So, it must be asked, why do the good people at Positive Money, who have done such an excellent job of exposing how the private bankers create money completely out of thin air as debt, seemingly decline to research and highlight the power and the strength of the BIS (which sees itself as the central bank for all the central banks), not to mention the dynastic banking families who, ultimately, control this secretive and unaccountable organisation as well as the whole central banking system?

    And now we come to that historical precedent which the leadership of Positive Money has also failed to research, even though they have been alerted to it on numerous occasions.

    In August 1914, at the outbreak of World War One, the Bank of England and the private bankers feared an immediate run on the banks as the uncertainty of war persuaded people to withdraw their gold. The solution was incredibly simple and effective! In a matter of four days, Parliament passed an Act authorising HM Treasury to print debt-free and interest-free paper money which was based entirely on Britain’s wealth and potential. Called Bradbury Pounds (as the signature on them was that of Sir John Bradbury, First Secretary to the Treasury) they were immediately accepted by the British people and so avoided emptying the gold vaults just as Britain was mobilising for war. The full story can be found here:….

    As with President Lincoln’s debt-free and interest-free US Treasury Greenback Dollars and the Colonial Scrip of the American Colonies, the Bradbury Pound worked brilliantly and there was no talk at all of inflation. So we really must ask why does Positive Money not look at this simple and effective precedent of HM Treasury (not the Bank of England) issuing sovereign debt-free and interest-free money that is based entirely on our nation’s wealth and potential in order to provide the liquidity needed to create a prosperous and successful economy whilst meeting the needs of the NHS and our other essential services?

    If you are a supporter of Positive Money, please do something to ensure that this campaigning organisation, that has done so much to raise the profile of how money is created, now goes where the provable truth and actual historical precedents are. This free e-book will help you with your further research

    For those of us who do know what is going on (and we have some senior ‘insider’ contacts within the City of London who keep us informed), we really hope that the decent people who make up Positive Money will now go where the completely provable truth is and do the following:

    1. Highlight and condemn the criminal central banking system, especially the secrecy and deception being practised by the Bank for International Settlements.

    2. Call for an immediate and formal end to the relationship between the Bank of England and the Bank for International Settlements.

    3. Campaign for the immediate restoration of the Treasury-issued Bradbury Pound in order to provide the debt-free and interest-free liquidity needed for the essential services, strategic industries, vital infrastructure and overall well-being of the British people.

    On the 18th November 2013 Jeremy Corbyn and John McDonnell both signed Early Day Motion 748 which called for the restoration of the Bradbury Pound in its centenary year… and a meeting with John McDonnell is being planned for some time early in 2016. The tide is definitely turning and people are starting to wake up to the truth about money creation and money supply.

    Finally, thank you all for taking the trouble to read this. Regrettably, a huge and planned international financial collapse would appear now to be very likely at some point in 2016, especially as the ridiculous and contrived derivatives debt bubble now amounts to well over 550 trillion US dollars (some commentators say that it has now reached more than one quadrillion dollars!). It would be fantastic if Positive Money could now, with a sense of urgency, join us in our new grassroots campaign network to bring back and restore the Treasury-issued debt-free Bradbury Pound. Surely it is now the time for all of us to come together with the provable truth – the truth that will bring down the central banking system and stop humanity from being debt slaves to the criminal and controlling elite within the City of London and the Bank for International Settlements. Time is not on our side so please take action quickly to get things moving!

    Justin Walker – Bring Back the Bradbury Pound Campaign Coordinator.
    British Constitution Group and the UK Column

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