Pro lesson, preview locked
Unlock the full video and walkthrough with FinanceFlow Pro.
5:00How Banks Create Money When They Lend
Your bank didn't lend you someone else's savings. It typed a number into your account and conjured the money into existence, then deleted it again as you repaid. Here's the keystroke that makes most of the money in the economy.
Most people picture a bank as a piggy bank: it gathers savers' deposits and lends them back out. The Bank of England's 2014 paper *Money creation in the modern economy* says that is "a common misconception." In reality, commercial banks create new money whenever they make a loan. They don't move existing money, they make new money, and that is how the majority of the money in circulation comes into being. In the UK, around 97% of the money held by the public is bank deposits, not banknotes.
Unlock the full lesson with Pro
The complete walkthrough, rail map and quiz for How Banks Create Money When They Lend, plus every Pro lesson in the library.