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Fractional Reserve Banking Creates Money
When a bank accepts a deposit from a customer, no new M1 is created. The form of M1 is simply changed. What had been a $100 bill in Ed’s pocket (currency) now becomes a checking account deposit (demand deposit).
And vice-versa. If a deposit is withdrawn from a checking account, no new M1 is created. Only the form is changed.
But, if a loan is made, then new M1 is created. Only
new loans create add to M1.