4 ms·
> a lot of money gets created by banks Interesting, how does that work? Can a bank create money to pay its own taxes? That sounds too convenient...
by posix_me_less 8y ago
> a lot of money gets created by banks
Interesting, how does that work? Can a bank create money to pay its own taxes? That sounds too convenient...
- Someone 8y agoThey could (think of it: a bank could just tell government that it has more money in the bank now, or tell another bank that they transferred an x amount to the government’s account there), but regulations forbid it and various controls work hard to prevent it. A bank creates money when it borrows you money that isn’t fully backed by saving account(s). See https://en.m.wikipedia.org/wiki/Fractional-reserve_banking https://en.m.wikipedia.org/wiki/Fractional-reserve_banking, which, a.o. says: ”Because banks hold reserves in amounts that are less than the amounts of their deposit liabilities, and because the deposit liabilities are considered money in their own right, fractional-reserve banking permits the money supply to grow beyond the amount of the underlying base money originally created by the central bank.” The amount by which a bank can do that is regulated, and, in the end, under control of the central bank. The central bank won’t be involved in every minor fluctuation of the amount of money in circulation, though.