How Much Money Have Banks Created?

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Banks have two key powers in today’s economy – they get to decide:

  1. how much money to create, and
  2. how to use this money.

1. How much money have banks created?

From the time when the Bank of England was formed in 1694, it took over 300 years for banks to create the first trillion pounds. It took them only 8 years to create the second trillion. Today cash – the green area at the bottom of the chart below – accounts for just 3% of the total money in the economy. The red area – money created by commercial banks – accounts for the other 97%.

M4-Base-Money-Graph

 

2. How have they used this new money?

Over the last 15 years the banks have used their power to create money to pump hundreds of billions of pounds into the property market (as shown by the increase in the categories “Lending to real estate” and “Secured lending to individuals” below). This has pushed the price of housing out of reach of ordinary people. Lending to the finance sector has also increased greatly over the past 15 years; this sector includes the companies that were involved in much of the reckless speculation which contributed to the crisis.

Meanwhile, lending to businesses has stagnated, harming the real economy and lowering employment and growth.

Sectoral lending

(Click to view larger)

NEXT: See how we got into this mess because a law passed in 1844 was never updated  >>>

Learn More

Overview

Bank of England - Money Creation in the Modern Economy

The Proof

The way that money is taught in universities is often very inaccurate. These papers and sources from central bankers and other experts show how the system really works.

Stockton_on_Tees_Bank_note

How We Got Here

The laws that make it illegal for you to print your own £5 or £10 notes have been in place since 1844. But these laws have never been updated to account for the fact that 97% of money is now digital.

The Technical Details

Banking 101

Video Course: Banking 101

This free animated video course (total 57 minutes) explains how the modern banking system creates money, and what limits how much money banks can create.

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Advanced: All the technical details

This section covers all the nitty-gritty details of money creation by banks. We cover the three types of money, how balance sheets work, how central and commercial banks create – and destroy – money and what is wrong about the textbooks taught in universities. Read more…

Books

WDMCF2

Book: Where Does Money Come From?

“Refreshing and clear. The way monetary economics and banking is taught in many – maybe most – universities is very misleading and this book helps people explain how the mechanics of the system work.”

Professor David Miles, Monetary Policy Committee, Bank of England

Modernising Money Cover Web 300px

Book: Modernising Money

Why our monetary system is broken, and how to fix it. 

“Money is a social invention, indeed among the most important of all social inventions. At present the right to create money has been handed over to the private businesses we call banks. But this is not the only way we could create money and, as recent experience suggests, it may be far from the best one. Read this book with an open mind and you will understand why.”

Martin Wolf, Chief Economics Commentator, Financial Times

Further Resources

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Papers and videos from:

  • The Bank of England
  • The International Monetary Fund
  • Lord Adair Turner, former chairman of the UK’s Financial Services Authority
  • Other professors and experts in the monetary system

Find out more

Sign the petition!

Tell the future Prime Minister of the UK that money creation should only be used in the public interest.

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