How Much Money Have Banks Created?

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Banks have two key powers in today’s economy – they get to decide:

  1. how much money to create, and
  2. how this money can be spent.

1. 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 only 8 years for banks to create the second trillion. Today cash accounts for just 3% of the total money in the economy (coloured green on the chart below). Money created by banks accounts for the other 97% (red on the chart below).



2. How have they used this new money?

Over the last 15 years the banks have used their power to create money to pump hundreds of billions of pounds into the property market (shown in red below). This has pushed the price of housing out of reach of ordinary people. Lending to the finance sector has also increased greatly over the past 15 years; this sector includes the companies that were involved in much of the speculation which contributed to the crisis.

Meanwhile, lending to businesses has stagnated, harming the real (non-financial economy) economy and lowering employment and growth.

Sectoral lending

(Click to view larger)

NEXT: See how we got into this mess because a law passed in 1844 was never updated  >>>

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 We Got Here

The laws that make it illegal for you to print your own £5 or £10 notes have been in place since 1844. But these laws have never been updated to account for the fact that 97% of money is now digital.

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

Modernising Money Cover Web 300px

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

  • useful in parts

    um – to be useful doesn’t the graph need to show total amount of money created compared to some volume indicator to do with trade or commerce?

  • Camber

    In graph 1, it shows £2,213 bn of ‘created’ money against £67 bn of real money. What are the implications and impact of the ‘created’ money being loaned at an average of say 3% interest (£66 bn) which is almost identical to the amount of real money. Insolvency?

  • Joss

    Whilst Positive Money’s narrative makes sense, it leaves me with two questions which I don’t have answers for. If anyone can help, please do…

    1) Saying a bank lends £1000 to a customer, by putting a deposit in their account. That person then makes ten repayments of £110 each. The bank has made a £100 profit (in interest payments), which it then puts in its shareholders accounts. My question is this: Why doesn’t the bank just put the £100 in the shareholders accounts in the first place, if it can create money? Why does it go through all the hassle of getting a customer, which would cost time and effort in marketing and admin?

    2) If banks can just create money by putting it into people’s accounts, how did Northern Rock go belly up? Surely they could have just created money to make up their shortfall.

    • Antonio Tavares

      Hi. I’ve started as puzzled as you seem to be, but I can already answer to your
      question 1: They can create money, only when someone asks for it to the bank. Say, for example, that I need 10 million pounds to buy an hotel. The bank needs only the 10% of the “reserve fund”, 1 million in this case. The bank can go to the central bank and borrow it at 1% interest rate, or use their own money, whatever. Then they transfer 1 million to my account and they create new money, 9 million, so now I can use 10 million.

      • Joss

        Thanks :-)

        • mipple

          Banks can create money, but they must also create a DEBT contract at the same time. So if they create £+1000 in MONEY they must create £-1000 in DEBT (this adds up to zero). So if the lender pays back £+100 per month, then each month the DEBT will decrease by £+100, so after the first month the debt will decrease from £-1000 to £-900. After 10 months the debt will become £0 and the debt will be paid off.

          If you have to pay 10% interest on the loan, then you will have to pay back a total of £1000 principal (which the bank creates) + £100 interest (which is re-circulated). So if you pay back £110 per month the bank will take £100 of that, and subtract it from the principal reducing the principal part of the debt, and taking that money out of existence. The extra £10 per month is profit, which the bank keeps, it does not extinguish that £10, It spends in to the economy.

          Ultimately you will have to do some work for the bank to earn back the money that the bank withheld as profit. For example: If the above £1000 that was created by the bank was the ONLY £1000 that EXISTED, then you would need to somehow earn back the £100 total interest that the bank withholds as it’s profit. You can do this by doing some work for the bank. This is because you will need this £100 to be able to pay of the £1000 principal and reduce the debt to zero, since it is part of the only £1000 that EXISTS.

          As a restriction on the amount of money banks can create out of thin air like this, they are only normally allowed to create 10 times the amount of money they have on deposit. So in principal they could only create that £1000 only if someone else had previously deposited £100 at the bank. However before the crisis this “reserve ratio” was essentially reduced so that banks could create up to 1000 times the money they had on deposit… at that point the banks stopped bothering to pay interest on customer deposits… since they no longer needed deposits to create money any more.

          Obviously if you have only four banks creating most of the money like this (like in the UK) the system is open to corruption… The bank can withhold it’s profit portion and you would be forced into bankruptcy, then they can seize all you assets!

          • Shawn Chong ChenJiao

            Thanks for all the information, if in such a case, would that be possible for bank itself to loan money to themselves? Let’s say the Bank of England open a company, the bank loan a million to this company which basically own by Bank of England. Then this company can use this one million to buy property, buy stock, invest in all sort of thing. In such a case, the bank just create a million dollar to spent for himself. Is that possible?

            Then maybe somehow they can bankrupt that company and Bank of England just consider the one million bad debt. Is that possible too? If true, they really just create money out of thin air and spend by few of the people only.

  • Laurence James Howell

    This website does not explain how the people are ripped off. The Bank of England is a private enterprise and not owned by the UK Gov.
    It is the corruption within the system that is the problem. no one from this website will contact me to discuss what I have posted. My postings have upset the paradigm that is being promoted by this site so beware of websites that will not tell the truth.

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