El proceso de creación de dinero

Summary

This video explains the process of money creation by banks, illustrating how banks can generate money out of nothing. The process begins when savers deposit their money, and banks only reserve a small portion while lending out the rest. Through a series of loans and deposits, the money circulates and grows. Using a simple example, the script shows how a deposit can multiply through loans, creating more money within the economy. The key is the bank's ability to lend money and the trust of depositors in the system, ensuring the continual flow of credit and liquidity.

Takeaways

• 😀 Banks can create money out of nothing through the process of lending.
• 😀 When savers deposit money in banks, it is not all kept in cash; a portion is reserved as 'bank reserves'.
• 😀 Banks only need to hold a small fraction of total deposits (e.g., 20%) as reserves, which allows them to lend the rest.
• 😀 By lending out a portion of the deposits, banks effectively create new money in the economy.
• 😀 For example, if a saver deposits 100 million euros, the bank can lend out a portion, leading to a higher money supply (e.g., 180 million euros).
• 😀 The process of money creation through loans can continue through multiple stages, with money being deposited, reserved, and lent repeatedly.
• 😀 Money is created each time a loan is made, but the amounts decrease progressively in each cycle due to required reserves.
• 😀 A multiplier effect exists in banking, where the initial deposit can create much more money through successive lending stages.
• 😀 The banking system operates on trust; banks rely on the fact that not all depositors will demand their full deposits at once.
• 😀 The formula to calculate the total money created in the banking system is: Initial Deposit × (1 / Reserve Ratio).
• 😀 In a scenario where 1,000 euros is deposited and the reserve ratio is 20%, the total money supply can increase to 5,000 euros, with 4,000 euros being created through loans.

Q & A

How do banks create money from deposits?

Banks create money by lending out a portion of the deposits they receive. The bank keeps a fraction as reserves, typically a percentage set by law (reserve requirement), and loans out the rest. This creates new money in the form of loans while maintaining the same original deposit in the account.

What are bank reserves, and why are they important?

Bank reserves are the portion of deposits that banks are required to keep on hand, typically a set percentage mandated by law. Reserves are important because they ensure that banks can meet withdrawal demands from customers without running out of cash.

How does the reserve requirement influence the amount of money a bank can create?

The reserve requirement determines how much money a bank must hold in reserve and how much it can lend out. The lower the reserve requirement, the more money a bank can lend, thus creating more money. The reserve requirement directly influences the money multiplier, which shows how many times an initial deposit can be expanded through loans.

What is the money multiplier, and how is it calculated?

The money multiplier is a measure of how much the money supply can increase based on an initial deposit. It is calculated by dividing 1 by the reserve requirement. For example, if the reserve requirement is 20% (or 0.20), the money multiplier is 1 / 0.20 = 5, meaning the initial deposit can be multiplied by 5 in the form of loans.

What happens when a bank lends out money, and how does this create more money in the economy?

When a bank lends out money, it increases the amount of money circulating in the economy. The borrower spends the money, and the recipient deposits it into another bank. This new deposit is then subject to the same reserve and lending process, further increasing the money supply.

Can a bank lend out all the deposits it receives?

No, a bank cannot lend out all the deposits it receives. It must keep a portion of the deposits as reserves to meet withdrawal demands. The amount it can lend out depends on the reserve requirement set by regulators.

How does the process of money creation work with the example of Marina’s initial deposit?

In the example, Marina deposits 1,000 euros in the bank. The bank keeps 200 euros as reserves (20% of 1,000) and lends out the remaining 800 euros. This process is repeated as the 800 euros are spent and deposited in other banks, with each new bank keeping reserves and lending out a portion, creating more money in the process.

What is the role of trust in the banking system?

Trust is essential in the banking system. Banks rely on the fact that not all depositors will demand their money at once. If depositors trust that their money is safe and do not rush to withdraw it, the system can continue to function, with banks lending out money and creating more economic activity.

What would happen if all depositors wanted to withdraw their money at the same time?

If all depositors wanted to withdraw their money at the same time, the bank would not have enough physical cash on hand because most of the money is loaned out. However, the bank could borrow money from other banks to cover the withdrawals, and this is why the system relies on trust in the bank's ability to manage withdrawals.

How do the concepts of deposits, reserves, and loans work together to create more money in the economy?

When a deposit is made, the bank keeps a portion as reserves and lends out the rest. The money that is loaned out is spent, deposited back into the banking system, and the cycle continues. Each time money is loaned out, the total amount of money in the economy increases, as new loans are considered new money, while the original deposit remains in the account.