Money Creation: Genesis 3: Bank Deposits

Abstract

After the discovery by the goldsmith-bankers that loans could be made by the issue of the newly accepted means of payments, receipts/bank notes, there was an inevitable next step: deposit money. Bank notes are deposits, but in a different form. Bank deposits are also accounting entries, but they are easier to manage - because they are divisible to the lowest-denomination currency unit. Also, loans can be made by crediting a deposit account or allowing the account to be overdrawn. The shift to the creation of deposit accounts for clients and the transfer of amounts from one account to another is a defining moment in the history of money and money creation.

Keywords: money, money creation, central banking, banking, monetary policy, economic history

JEL Classification: A22, B15, E42, E51, E52, G21, N13