Money Creation, Fractional Reserve Banking & Central Banks
Core Thesis & Overview
This essay explains how central banks create base money while commercial banks generate elastic money through fractional reserve lending. It details how the banking system expands liquidity, the mechanics of bank balance sheets, and how government spending, taxation, and central bank interest rate policies interact to manage economic activity.
Key Takeaways & Analysis
Sovereign governments have the power to print their own currency. Governments authorize their Central Banks to manage their fiat currency. Central Banks have the authority to create money. Central Banks can create money that increase the money supply and money available for financial transactions. More money in the system is inflationary in nature. Inflation is […]