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SOURCE ROOM

Money creation in the modern economy

Bank of England — Michael McLeay, Amar Radia, Ryland Thomas

Claims Supported by This Source

  1. Banks are not intermediaries that lend out deposits; lending creates deposits.
  2. Central bank money is not multiplied into loans.
  3. 97% of broad money consists of bank deposits (UK, 2014).
  4. QE initially increases bank deposits and creates reserves as a byproduct. Reserves are not free money for banks.
  5. The quantity ultimately depends on the central bank's monetary policy (interest rates).

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