1888? Whitechapel Murders, Nintendo

March 14, 2014 § Leave a comment

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The Bank of England’s Quarterly Review contains a detailed description of how money creation works in the UK’s fiat money economy…

And it is controversial. It rejects conventional theories of bank lending and money creation (my emphasis):

“The reality of how money is created today differs from the description found in some economics textbooks:

• Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.

• In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.”

To be sure, numerous papers from many eminent researchers and august institutions (including the Fed, the IMF, the ECB and the Bank for International Settlements) have cast doubt upon conventional theory as an adequate explanation of money creation in a modern fiat money system. But to my knowledge this is the first time that a central bank has presented an explanation of money creation that so comprehensively departs from conventional orthodoxy…

It is of course difficult for mainstream economists to accept that the theory they have believed and taught for so many years – and upon which many models of the economy depend – is simply inadequate. read more

PHOTOGRAPH: Katie West

Tagged: amar radia, asset & liability management, bank lending, bank of england, bank of england quarterly bulletin, bank reserves, base money, broad money, ecb, eu banks' funding structures and policies, fiat money, frances coppola, loans create deposits, michael mcleay, money creation, money creation in the modern economy, money destruction, money multiplier, money supply, quantitative easing, ryland thomas

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