It’s called “Fractional Reserve Banking”. The bank only needs to have about 10% of a loan on hand.
If a bank has $100, they can write a loan for $1,000; effectively putting $900 more into circulation. When that is spent, it gets deposited into a bank, which can then loan it out amplified again.
This could create infinite money, as I understand it. Since there is not infinite money, there must be a gap in my understanding somewhere.
It’s called “Fractional Reserve Banking”. The bank only needs to have about 10% of a loan on hand.
If a bank has $100, they can write a loan for $1,000; effectively putting $900 more into circulation. When that is spent, it gets deposited into a bank, which can then loan it out amplified again.
This could create infinite money, as I understand it. Since there is not infinite money, there must be a gap in my understanding somewhere.
Afaik some countries have dropped reserve requirements altogether.
Loans can be given out as long as the recipient is credit worthy.
Money is free and infinite according to MMT