Money Creation

Credit creation refers to the phenomenon in which banks create deposit money through repeated lending under the fractional reserve system, where only a portion of deposits is kept as reserves and the rest is lent out. When the central bank issues 100 units of money and supplies it to Bank A, the bank keeps only a fraction of it as reserves and lends the rest to the private sector, creating that much money. The money creation process does not stop here.

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Topics: central bank,Money Supply,Debt Monetization
Category: Wiki/Economy