Centralized Money

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While money was created in innumerable different places for innumerable different purposes, its diverse roots are no longer evident in the operation of modern money systems. The diversity of names and currency symbols should not be allowed to distract from the similarity, which has effectively been reduced to a single global model, repeated in almost every country in the world with only minor differences:

  • Currencies have a single issuing authority, a central bank, generally called "Bank of <country name>"
  • Central banks are generally believed by the population to be answerable to national governments, but tend to be more or less independent
  • Central banks issue 'high-powered money' to commercial banks
  • This 'high-powered money' is not money as commonly understood, but is effectively a licence to create money
  • Commercial banks create money by making an accounting entry, and loan it out to customers
  • To borrow money, customers must sign a promise to return more money later, or give up their house, factory or other property
  • While any individual customer may be able to repay their loan, it is impossible for everyone to do so - for the simple reason that they have promised to repay more than they borrowed, and they are not allowed to create money
  • Commercial banks can regulate the rate of debt default by the terms on which they offer new loans
  • Governments borrow money
  • Countries have a 'national debt' which is not


  • Governments do not have the power to create money
  • Commercial banks do have the power to create money
  • Cash is an ever smaller fraction of the total money supply, often less than 5%
  • Commercial banks do not need gold reserves, and money is not redeemable for gold - so central banks can create as much money as they wish
  • A country's national debt is not what it owes to other countries