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01 February 2010

Do banks create money from nothing?

I've come across some info online that describes how banks create money, essentially conjuring it from nothing. This info contradicts what I thought about money creation, with images of the Royal Mint printing vast sheets of notes. Rather, when you ask for a loan from a bank, they don't actually have the money but create the credit on your account in their "system." They then ask for all of this money back with extra in the form of interest - money that they didn't have in the first place! When you deposit money into an account, the bank is able to create money upto ten times the amount you deposited - money from nothing! Can anyone confirm or refute this please? If it's the case that it cost the bank nothing to create the credit, then I think there's an argument for not paying it back.

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