If 3 percent of the money in the UK economy is printed by the Bank of England where does the rest come from? Holly explains all (seen video below).

I would also add that I've always been of the school of thought that banks create the money we have via debt creation too.

But many people just won't have it. They steadfastly believe that money is deposited in banks and building societies by savers , which is then given out to borrowers at a rate of interest, which is shared between the bank and the saver.

That seems so logical until you closer look at the mechanics of it:

If you are a saver have you ever had money taken out of your account to give to a borrower? No? Think about it. If the money that is loaned to to borrowers truly came from other peoples' savings then why, when a borrower walks out of the bank with a mortgage, doesn't the savers' accounts of those banks have less money in them?

For example, the bank has ten saving customers each with £100 in their deposit accounts. That bank therefore has £1,000 in its vaults, yes?

Saving 1 © The Economic Voice

A borrower comes in and takes a £100 loan from the same bank. Now the bank has £900 in the vaults. So, if each of the savers now logs on to their accounts they will see £90 in their account with an IOU for £10 plus interest for Mr Smith's loan ……. ? I have never seen such an entry, have you?

If not, then where did the £100 come from as the bank now has £1,000 still in the vaults and has given £100 out making £1,100 from £1,000 without doing anything. Now why can't we all do that?

It could also be the case that the bank borrowed the extra money using the savers' money as collateral. Then they have to charge the borrower an interest rate that covers the rate of the money the bank has borrowed at plus the savers' return on their investment plus the profits for the bank. But where and who has the bank borrowed it from?

But either way the savers' money is not loaned out directly.

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