“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves… When a bank makes a loan to one of its customers it simply credits the customer’s account with a higher deposit balance. At that instant, new money is created…”
the relationship between reserves and loans typically operates in the reverse way to that described in some economics textbooks. Banks first decide how much to lend depending on the profitable lending opportunities available to them…It is these lending decisions that determine how many bank deposits are created by the banking system. The amount of bank deposits in turn influences how much central bank money banks want to hold in reserve (to meet withdrawals by the public, make payments to other banks, or meet regulatory liquidity requirements), which is then, in normal times, supplied on demand by the Bank of England
Dirk H. Ehnts, a lecturer in economics at Bard College, Berlin, has written Modern Monetary Theory and European Macroeconomics. The book acts an introduction to Modern Monetary Theory (MMT), aimed specifically at the situation in the euro area. This is distinctive, as a great deal of the MMT literature discusses the situation of floating currency sovereigns (which is the preferred position in MMT, as distinct from the rest of the post-Keynesian literature, where some economists are in favour of currency pegs). The later chapters of the book give a historical explanation of the euro crisis, and offers an outline of how the euro area can be reformed. The book is aimed at non-specialist readers.
Tweet What an exciting few weeks for the Positive Money campaign! Rounding off this morning with this full-page splash in the local newspaper of the Chair of the influential Treasury Select Committee of MPs. Here’s our crowd-funded advert in the … Continue reading →
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