The Thinking Man

  There are several misconceptions about how money is created, which can lead to misunderstandings about the role of banks and central banks in the economy. Let’s clarify some of the most common ones:   Misconception 1: Banks as Mere Intermediaries Belief: Banks take in deposits from savers and then lend out those same deposits to borrowers. According to this view, the amount of money that banks can lend is limited by the amount of deposits they receive. Reality: In reality, banks do much more than just redistribute deposits. They actually create new money when they issue loans. Here’s how it works: when you take out a loan from a bank, the bank doesn’t give you money from someone else’s deposit. Instead, it creates a new deposit in your account, which you can then spend. This means that banks create new money every time they issue a loan. So, lending is not limited by the bank’s existing deposits but by the demand for loans and the creditworthiness of borrowers. This proces...