How Banks Create Money

How Banks Create Money

Tim explains how banks and their customers interact in the "creation" of money, and provides an overview of the banking system and its limitations.
Overview

Money has three functions in a modern economy: a store of value, a unit of account and a medium of exchange. And it exists in different forms. By making loans, banks create money, but several factors limit their ability to do so.

Key learning objectives:

  • What functions does money have?

  • What types of money exist?

  • How do banks create money by making loans?

  • What limits banks’ ability to create money?

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