Does the bank use the $100,000 they obtained from the borrower to create $100,000 of new money called checkbook money?
Hardly. The bank never received $100,000 from the borrower, the bank received only a promissory note—a promise to pay. The note allows the bank to create currency. The bank monetized (created out of thin air) the debt for $100,000 and put that much in a checking account for the borrower. However, for many loans, placing the cash in the account and then giving the borrower a check both occur at basically the same moment.
