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Examining modern money creation: An institution-centered explanation and visualization of the “credit theory” of money and some reflections on its significance

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  • Andrew Hook

Abstract

Despite recent clarifications by central banks that it is indeed commercial banks that are the main creators of the money supply, money creation processes remain as confusing and opaque as ever to many. This article develops a simplified macro-visual diagram of today’s money system based on the increasingly accepted “credit theory” of money creation. It aims to explain not only how money is created and which institutions have the authority to create it; it also aims to discuss the implications of this understanding of money creation for wider issues, such as political sovereignty, inequality, and socio-economic development. Ultimately, it aims to provide a pedagogical resource upon which both technical and normative discussions about our current money system among academics, activists, and students can be based.

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  • Andrew Hook, 2022. "Examining modern money creation: An institution-centered explanation and visualization of the “credit theory” of money and some reflections on its significance," The Journal of Economic Education, Taylor & Francis Journals, vol. 53(3), pages 210-231, June.
    • Handle: RePEc:taf:jeduce:v:53:y:2022:i:3:p:210-231
    DOI: 10.1080/00220485.2022.2075510
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    Cited by:

    1. Jamie Morgan, 2023. "Systemic stablecoin and the brave new world of digital money," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 47(1), pages 215-260.
    2. Pawe³ Œliwiñski, 2023. "Endogenous money supply, global liquidity and financial transactions: Panel evidence from OECD countries," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 18(1), pages 121-152, March.
    3. Ahmad AlHarbi & Wafa Sbeiti & Moid Ahmad, 2024. "Money Supply, Banking and Economic Growth: A Cross Country Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 14(2), pages 234-242, March.

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