Banks Create Money

This isn’t a conspiracy theory. It’s taught in economics textbooks. It’s confirmed by central banks themselves. The Bank of England published a paper in 2014 explaining it plainly.

Commercial banks create money when they make loans.

Here’s how it works. When a bank approves a mortgage for $300,000, it doesn’t transfer $300,000 from one account to another. It doesn’t retrieve cash from a vault. It simply credits the borrower’s account with $300,000 — a number that didn’t exist in any account before that moment.

The loan creates the deposit. The money is new.

The bank does record a corresponding liability — you owe them $300,000 plus interest. But that debt is an asset on their books. The transaction balances. New money has entered the world.

This is why the total amount of money in an economy is closely tied to the total amount of debt. When people and businesses borrow more, the money supply expands. When loans are repaid and debt decreases, money is effectively destroyed. The money supply is not a fixed pool — it breathes in and out with credit.

This isn’t inherently evil. Credit has funded hospitals, railways, and businesses that employed millions. But it does mean the money system is fundamentally built on debt — and that the people who create that debt collect interest on every dollar that enters the economy.

Somewhere, on every transaction you make, a bank is collecting a toll.

Tomorrow: the full picture of fractional reserve banking — and what your $1,000 deposit actually becomes.

— The Daily Bit