Most people think that money is what we put in our pockets – our £10 notes and 5 pence coins – which are made by the Bank of England. The Bank prints the notes, and the royal mint makes our coins on their behalf. But this money accounts for only 3% of the money created.
So where does the other 97% come from?
As a recent report from the bank of England explained:
“Where does money come from? In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood. The principal way in which they are created is through commercial banks making loans: whenever a bank makes a loan, it creates a deposit in the borrower’s bank account, thereby creating new money. This description of how money is created differs from the story found in some economics textbooks.”
This short video from Positive Money shows how it happens:
untrivialpursuit.com 