An interesting article was published in the Frankfurter on Sunday, which reports on where banks are taking money for lending. Among other things, the view of the bank-critical movement Occupy is shown: It believes that banks “make” money out of nothing.
The Criminal Code determines who is allowed to print money
According to § 146, only the European Central Bank is entitled to do so. But banks also create money. However, in a different form. The biggest part of a bank’s money is electronic money. In Europe, the total amount of money is 4.8 trillion euros. Of these, 858 billion are cash and the remainder exists in accounts, called sight deposits.
Exactly this money is created mainly by banks: When a customer takes a loan and money is transferred to his account, book money. The customer can continue to use the money, transfer it to others, pay for goods with his debit card or pick up cash at the vending machine. Thus, it is currently only a technical advance over the cash.
Banks are forced to deposit money with the central bank for the loan granted
However, this minimum reserve is much smaller than the loan amount and is now only one percent. But even this money must not finance banks through savings deposits of their customers. You can borrow from the ECB and deposit collateral. This money then comes back in the form of deposits to a bank and this can then also lend again. Economists also call this cycle multiple money creation.
Task of monitoring
The ECB here assumes the task of monitoring. It controls the processes by influencing the minimum reserve rate and the interest rate. The amount of money created by banks is not dependent on these two factors, but on how many loans they are lending.
The central bank is currently lending cheap loans to banks, but they are holding back on the creation of money, as the uncertainty is very high. Thus, it is the banks that decide on the growth of the money supply. But also the private individuals and companies, as they determine the demand for credit.