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 are:
- How is this all regulated? Who regulates the balancing of the books?
This must require a lot of regulation in order to be feasible, because there are many commercial banks, but few central banks, and because central banks lack power. E.g. central banks can only set interest rates thus defining the theoretical inflation rate, or buy assets through quantitative easing.
What's stopping a commercial bank from making a deposit into someone's bank account that isn't on the books or what's stopping them from not destroying the money they get paid back from loans?
Can I find out more about this stuff for each bank? In other words, is this public information or not?