Examining modern money creation: An institution-centered explanation and visualization of the “credit theory” of money and some reflections on its significance

Andrew Hook

The Journal of Economic Education, 2022, vol. 53, issue 3, 210-231

Abstract: Despite recent clarifications by central banks that it is indeed commercial banks that are the main creators of the money supply, money creation processes remain as confusing and opaque as ever to many. This article develops a simplified macro-visual diagram of today’s money system based on the increasingly accepted “credit theory” of money creation. It aims to explain not only how money is created and which institutions have the authority to create it; it also aims to discuss the implications of this understanding of money creation for wider issues, such as political sovereignty, inequality, and socio-economic development. Ultimately, it aims to provide a pedagogical resource upon which both technical and normative discussions about our current money system among academics, activists, and students can be based.

Date: 2022
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DOI: 10.1080/00220485.2022.2075510

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