Money creation in fiat and digital money systems


Money creation in fiat and digital money systems

Author / Publisher:

Marco Gross; Christoph Siebenbrunner

Publication date:

December 20, 2019

Electronic access:

Free download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: IMF Working Papers describe ongoing research by the author (s) and are published to elicit commentary and encourage debate. The views expressed in IMF Working Papers are those of the authors and do not necessarily represent those of the IMF, its Executive Board or its management.


To support the understanding that issuing debt by banks means creating money, while intermediary lending from centralized nonbank financial institutions and decentralized bond markets does not, the paper aims to convey two related points: Loan creation is compatible with the notion of liquid financing needs in a multi-bank system, in which transfers of liquid funds (reserves) between banks occur naturally. Second, monetary policy based on interest rates affects macroeconomic dynamics precisely because of this multi-bank structure. It would lose its impact in the hypothetical case of only one commercial bank (“singular”). We link our discussion to the emergence and design of central bank digital currencies (CBDCs), with particular emphasis on how loans would be made in a CBDC world.


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