How is the UK money supply distributed?

The UK money supply in 2010 totaled 2.15 trillion pounds, with only 2.6% being physical cash and the rest, 97.4%, being commercial bank money. Commercial bank money is created through loans issued by banks, with the profit from creating physical money going directly to the Treasury, reducing the need for taxes. In 1948, notes and coins made up 17% of the total money supply, contributing to post-war reconstruction, including the establishment of the NHS. Prior to 1844, private banks created bank notes, but a law passed in 1844 by the Conservative Government took the power to create money away from commercial banks and gave it to the Bank of England. Today, most money is digital, with commercial banks creating new money through loans and deciding its allocation.

How do banks create new money?

Banks create new money whenever they extend credit, buy existing assets, or make payments on their own account, leading to the expansion of the money supply. By 2008, the outstanding loan portfolio of bank-created credit stood at over 2 trillion pounds, with the ratio of bank-created money to Treasury-created money being 1:37 in 2010. In the 10 years before the 2007 crisis, the UK commercial bank money supply expanded by 7% to 10% annually. The majority of new money in circulation is created by private banks, not the government or central bank, with banks creating money through loans and deciding its allocation.

What is the impact of bank-created money on the economy?

Understanding the money system is crucial as it impacts the entire economy, with misconceptions about how banks operate prevalent among the public. A growth rate of 7% equates to doubling the money supply every 10 years. In the last decade, an astounding $1.2 trillion was created out of thin air. The money created is distributed based on banking sector priorities, not societal needs. From 1980 to $40 trillion by assets, the banking sector has seen exponential growth. Global bank assets in 1980 were 20 times the global economy, rising to 75 times by 2006. Speculation, not production, is the most lucrative economic activity today.

How does the banking system impact the economy?

Banks can now create new credit limitlessly based solely on their willingness to lend. Banks incentivized to create more money through loans, leading to excessive lending. The current system necessitates borrowing from banks to sustain the economy. The banking system's impact is immense, shaping the economy based on where newly created money is spent. Just before a crisis, there was only 20 billion in the central bank accounts, crucial for making payments. The Bank of England ensures enough central bank money is available to prevent system failure. Bank reserve requirements have changed since 1947, with a minimum ratio of 32% of reserves to deposits.

What are the consequences of the current monetary system?

The current monetary system allows banks to extract wealth from the economy without providing productive returns, leading to increased debt and a cycle of financial crises. Reforming the monetary system to prevent banks from creating money as debt is crucial to avoiding future financial crises, unnecessary public service cuts, tax rises, and national debt increases. Income differentials have widened over the last 30 years, benefiting the rich while ordinary people have not seen significant improvements. The economy relied on providing cheap credit to sustain itself, leading to increased debt among those who couldn't afford it. The Bank of England purchased corporate debt at lower interest rates post-crisis, yet individuals face higher borrowing costs.

The System of Money | Documentary | Money Creation Explained

Name: The System of Money | Documentary | Money Creation Explained
Uploaded: 2024-03-09T17:28:42.275Z
Description: The UK money supply is mostly commercial bank money, created through loans, impacting the economy significantly. The banking system's ability to create money has led to increased debt, financial crises, and income inequality.

Moconomy・73 minutes read

The UK money supply is mostly commercial bank money, created through loans, impacting the economy significantly. The banking system's ability to create money has led to increased debt, financial crises, and income inequality.

Insights

Commercial bank money, not physical cash, constitutes the majority of the UK money supply, created through bank loans, which affects the economy significantly.
The power to create money shifted from private banks to the Bank of England in 1844, with banks now creating new money through loans and determining its distribution, impacting economic growth and stability.
Understanding the mechanisms of money creation by banks is crucial, as it influences inflation, economic activity, wealth distribution, and the potential for financial crises, necessitating reforms to prevent future instability.

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Recent questions

How is the UK money supply distributed?
The UK money supply in 2010 totaled 2.15 trillion pounds, with only 2.6% being physical cash and the rest, 97.4%, being commercial bank money. Commercial bank money is created through loans issued by banks, with the profit from creating physical money going directly to the Treasury, reducing the need for taxes. In 1948, notes and coins made up 17% of the total money supply, contributing to post-war reconstruction, including the establishment of the NHS. Prior to 1844, private banks created bank notes, but a law passed in 1844 by the Conservative Government took the power to create money away from commercial banks and gave it to the Bank of England. Today, most money is digital, with commercial banks creating new money through loans and deciding its allocation.
How do banks create new money?
Banks create new money whenever they extend credit, buy existing assets, or make payments on their own account, leading to the expansion of the money supply. By 2008, the outstanding loan portfolio of bank-created credit stood at over 2 trillion pounds, with the ratio of bank-created money to Treasury-created money being 1:37 in 2010. In the 10 years before the 2007 crisis, the UK commercial bank money supply expanded by 7% to 10% annually. The majority of new money in circulation is created by private banks, not the government or central bank, with banks creating money through loans and deciding its allocation.
What is the impact of bank-created money on the economy?
Understanding the money system is crucial as it impacts the entire economy, with misconceptions about how banks operate prevalent among the public. A growth rate of 7% equates to doubling the money supply every 10 years. In the last decade, an astounding $1.2 trillion was created out of thin air. The money created is distributed based on banking sector priorities, not societal needs. From 1980 to $40 trillion by assets, the banking sector has seen exponential growth. Global bank assets in 1980 were 20 times the global economy, rising to 75 times by 2006. Speculation, not production, is the most lucrative economic activity today.
How does the banking system impact the economy?
Banks can now create new credit limitlessly based solely on their willingness to lend. Banks incentivized to create more money through loans, leading to excessive lending. The current system necessitates borrowing from banks to sustain the economy. The banking system's impact is immense, shaping the economy based on where newly created money is spent. Just before a crisis, there was only 20 billion in the central bank accounts, crucial for making payments. The Bank of England ensures enough central bank money is available to prevent system failure. Bank reserve requirements have changed since 1947, with a minimum ratio of 32% of reserves to deposits.
What are the consequences of the current monetary system?
The current monetary system allows banks to extract wealth from the economy without providing productive returns, leading to increased debt and a cycle of financial crises. Reforming the monetary system to prevent banks from creating money as debt is crucial to avoiding future financial crises, unnecessary public service cuts, tax rises, and national debt increases. Income differentials have widened over the last 30 years, benefiting the rich while ordinary people have not seen significant improvements. The economy relied on providing cheap credit to sustain itself, leading to increased debt among those who couldn't afford it. The Bank of England purchased corporate debt at lower interest rates post-crisis, yet individuals face higher borrowing costs.