Comment by immibis
1 year ago
And when we look at the bank assets which back those liabilities, we find that (say) 10% are government-printed money, and the remaining 90% were created by banks.
1 year ago
And when we look at the bank assets which back those liabilities, we find that (say) 10% are government-printed money, and the remaining 90% were created by banks.
We don't. What we see is both of those are loans made.
Technically the commercial bank lends to the central bank. That's why they receive interest on it.
That's just a loan like all the other loans on the asset side. The difference is that the interest rate is set by the borrower not the lender.
Holding a deposit is just different name for a particular type of loan.