Is the title of a book just published which everyone should read !
Where Does Money Come From?, co-authored by Positive Money’s resident expert Andrew Jackson, explains exactly how money is created in the UK, based on over 500 original documents from the Bank of England and other banking authorities. With a foreword by one of the leading authorities in banking, Prof Charles Goodhart, this is the most comprehensive and authoritative guide to how money is created ever published, and reveals that most of the textbooks are very much out of date.
Two of the authors, Josh Ryan-Collins and Tony Greenham from the New Economics Foundation, discuss the book and its findings below:
There is widespread misunderstanding of how new money is created. This book examines the workings of the UK monetary system and concludes that he most useful description is that new money is created by commercial banks when they extend or create credit, either through making loans or buying existing assets. In creating credit, banks simultaneously create deposits in our bank accounts, which, to all intents and purposes, is money.
Many people would be surprised to learn that even among bankers, economists, and policymakers, there is no common understanding of how new money is created. This is a problem for two main reasons. First, in the absence of this understanding, attempts at banking reform are more likely to fail. Second, the creation of new money and the allocation of purchasing power are a vital economic function and highly profitable. This is therefore a matter of significant public interest and not an obscure technocratic debate. Greater clarity and transparency about this could improve both the democratic legitimacy of the banking system and our economic prospects.