The First Unnatural Power Given to Commercial Banks: Creation of Money Out of Nothing

Kozo Mayumi () and Ansel Renner ()
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Ansel Renner: Autonomous University of Barcelona

Chapter Chapter 2 in Reconsidering the Privileged Powers of Banks, 2023, pp 17-41 from Springer

Abstract: Abstract This chapter deconstructs the complex process of money creation by commercial banks, examining its historical development and the integral relationship between commercial banks, central banks, and governments. It scrutinizes the evolution of banking practices, the role of shadow banking, and debunks myths associated with reserve banking, such as the belief that central bank policy directly influences commercial bank loan interest rates. By highlighting the power of commercial banks to create demand deposits from nothing, it reveals a key, unnatural capacity bestowed upon the banking sector. The chapter also challenges the traditional belief that barter preceded credit, using historical examples of early credit systems. It explores the origins and practices of banking from ancient Rome to the present and concludes by shedding light on the collusion between governments, central banks, and commercial banks, emphasizing the latter's power to underwrite sovereign debt, by way of which perpetuating financial instability.

Keywords: Commercial banks; Money creation; Central banks; Fractional reserve banking; Credit systems (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-99-6058-3_2

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DOI: 10.1007/978-981-99-6058-3_2

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