If anyone thought that banks lend depositors’ funds instead of creating new money when lending, which then become deposits, they should read The Bank of England’s latest working paper No. 529, which explains how the creation of new money becomes a deposit.
Issued on 29th of May 2015, the paper clearly states what Modern Monetary Theorists have been saying for over two decades. It also restates its own quarterly bulletin 2014 Q1, Money Creation in the Modern Economy.
In a way, it is a somewhat surprising move that blows the whistle on the popularly held view that banks are essentially intermediaries between depositors and borrowers. Importantly, it states quite emphatically that the current text book approach, and what most people believe, is erroneous.
Read more at: The Australian Independent Media Network
