Money Creation: Advanced Readings

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175 pages
This is a book of papers which endeavour to dispel the many misleading notions in respect of money creation.
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Alexander Pierre Faure graduated from Elsenburg Agricultural College after school and went on to Stellenbosch University where he graduated with BA (Commerce), Hons BA (Economics), MA (Economics), and PhD (Economics).

He also successfully completed the Stockbroker Examination Requirements at...


The basics of money creation is presented in Bookboon’s “Money Creation: An Introduction” at: This book presents a number of papers that delve deeper into this significant subject matter. In it we discuss issues such as the myth of a money multiplier (which remains the bedrock of money creation in certain text books), an experiment undertaken in a small country to prove that money creation is the outcome of new bank credit extension, the profound misconception that quantitative easing creates money, the role of bank liquidity (which is 100% under the control of the central bank) in monetary policy, the balance sheet and actual sources of money creation, the fact that there is no such thing as a money “supply” but only a supply of credit, and that the concept of money “demand” is meaningless.

  1. Money creation: the sources 1: general notes
    1. Abstract
    2. Introduction
    3. The literature
    4. Only two models of monetary policy
    5. A monetary analysis
    6. Private sector demand for bank loans
    7. Export receipts purchased by local bank
    8. Government issues bonds
    9. Increased demand for bank notes
    10. Money destruction
    11. Bank deposits and the reserve requirement
    12. Monetary analysis, given various measures of the money stock
    13. A parting thought
    14. References
  2. Money creation: the sources 2: relationship between credit and money
    1. Abstract
    2. Introduction
    3. What are bank credit, loans and investments?
    4. Data
    5. A monetary analysis
    6. Monetary policy in a nutshell
    7. M1, M2 and M3
    8. R2 of DCE and M3
    9. R2 of DCE and GDPN
    10. Concluding remarks
    11. References
  3. Money creation: misconceptions: quantitative easing creates money
    1. Abstract
    2. Introduction
    3. Literature review: media
    4. Literature review: academia and central banks
    5. Does quantitative easing create money?
    6. Quantitative easing creates excess reserves
    7. Can excess reserves be loaned out by banks?
    8. Concluding remarks: the money multiplier is dead
    9. References
  4. Money creation: death of the money multiplier
    1. Abstract
    2. References
  5. Money creation: reflections of an ex-central banker on exogenous / endogenous money
    1. Abstract
    2. Introduction
    3. The banking system and money
    4. A monetary analysis
    5. A touch of history
    6. The reserve requirement and money multiplier
    7. A bank liquidity analysis
    8. Accommodationism
    9. Endogenous money creation
    10. Interbank markets and central bank accommodation
    11. Interest rate-focused monetary policy
    12. Money multiplier-focused monetary policy
    13. Interest rate consequences of a money multiplier-focused monetary policy
    14. Quantitative easing
    15. Accommodationism and structuralism revisited
    16. The “exogenous money” puzzle
    17. Recent research from the home of the Monetarist School
    18. Further questions
    19. References
  6. Money creation: empirical evidence of endogeneity
    1. Abstract
    2. References
  7. Money creation: role of bank liquidity
    1. Abstract
    2. References
  8. Money matters: there is no such thing as a money “supply”
    1. Abstract
    2. Introduction
    3. Literature review
    4. Data
    5. Money creation in a nutshell
    6. Money aggregates
    7. Money “supply” does not exist
    8. Monetary policy in a nutshell
    9. References
  9. Money matters: money “demand” is meaningless
    1. Abstract
    2. References
    3. Endnotes