How do commercial banks create money? Is there a numerical example I can use?
The answer is called fractional reserve banking, it allows banks to create money out of thin air. They are required to keep a fraction of their deposits. “The banking system is allowed to keep reserves amounting to 10 percent of its deposits, which means that the “money multiplier” – the amount of deposits the banks can expand on top of reserves – is 10. A purchase of assets of $10 million by the Fed has generated very quickly a tenfold, $100,000,000 increase in the money supply of the banking system as a whole.” You go to a bank and deposit money, they are only required to keep a very small fraction of your deposit and can loan the rest of the money out to other customers and accumulate interest on the money. The idea of fractional reserve banking came about when goldsmiths who would hold peoples gold in turn for a paper receipts realized that not all their customers would redeem their receipts at once. They could loan out some of the peoples gold to others and collect interest on it
