I've just read Money Creation in the Modern Economy, an article published by the Bank of England.
This article brings about a lot of questions in my mind. This article talks about money being created through commercial bank loans, and that central banks only have the authority to set interest rates or to employ quantitative easing in order to stimulate the economy. Loans being repaid should theoretically destroy the money that was created and balance the books, but inflation grows in that economy as banks earn interest (and in this case, the interest is actually the money that never existed, assuming that they destroy the rest of the money paid back).
So, my questions is:
How is this fair for every other constituent in the economy who has earned money the hard way, by working and not by generating it so freely like interest returns on loans do for commercial banks?
How is inflation fair, as populations increase and every time someone gets a bank loan, new money is added to the economy over time as they pay back that loan, and everyone else's currency is de-valuated?
Consider country X which has one constituent named Roger who works at a commercial bank in X and, coincidentally is also the president of X. He gets a loan from his bank for 100 dollars (with an interest rate of 5%), however, in his economy, only 100 dollars of money exists as actual currency and he has 0 dollars in his bank account. He will never be able to pay off his interest rate of 5% without getting another loan. His bank or state will coincidentally not be able to pay him his wage over time without printing new money from a central bank or giving his bank a loan, or, perhaps a bail-out. All this interest will do is inflate the economy, and you can only fight interest with interest.
Now apply this concept to our current economic system on a macro level, and it feels to me like it will ultimately fail as a system, because inflation can only combat inflation for so long until the price of every asset reaches infinity.