Economy & Banks

Not quite - the article is a bit crap, making out that this is all new. Which it isn't.

The paper it refers to is saying that banks extending credit are also increasing the supply of money.

[*]This article explains how the majority of money in the modern economy is created by commercial banks making loans.

[*]Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.

The BofE article also discusses the role of quantitative easing in relaxing the market constraints on banks to make loans.