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The primary mechanism that "creates" money is ordinary banks loaning money in the fractional reserve system. The Federal Reserve does not have as much control a
by hidenotslide 9y ago
The primary mechanism that "creates" money is ordinary banks loaning money in the fractional reserve system. The Federal Reserve does not have as much control as people think.
- RobertoG 9y agoYou are right. Central banks can only influence the process, but what really decide the creation or "extinction" of money is the demand of credit in commercial private banks. In a way, the system is self-regulated. In fact, all the "fractional-reserve" thing is a myth. Banks loan when they see the opportunity of profit, and then they search for reserves. Not the other way around.