Money Created by Banks

For all of you who have been watching the Paul Grignon videos here is a little something about money created by banks.

The basic text book view is that commercial banks create  money through fractional-reserve banking,i.e. the banking practice where banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits upon demand.Commercial bank money is non-physical, as its existence is only reflected in the account ledgers of banks and other financial institutions.Also there is some element of risk that the claim will not be fulfilled if the financial institution becomes insolvent.So central banks make deposit insurance mandatory for banks. Read more of this post

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