Pretty good characterization Jedi. TheU maybe you could clarify your question?
Banks do not 'create' money. Only the central bank is authorized to create money and the central bank is governed by strict regulations (inflation targets) on much money it can create. The central bank with a monopoly over the money supply then lends that money out to retail banks. Retail banks can do what they wish with that money.
Banks create money in the sense that they are not obliged to keep capital reserves in line with their liabilities (deposits). Banks typically keep about 10% of their total liabilities in cash. What this allows is a cascading effect that Jedi describes in that if a bank lends out $1000 to one person they can continue to re-lend that money as it comes back into the bank from other people's deposits.
This is actually a very good thing. It creates liquidity in the economy which allows for the potential of more exchanges.
Is your problem with the idea of interest from loans? Unless there's a cost to borrow money then no one will lend it. You need interest to have finance. And you need finance to have economic growth.
|