How is it that the bank creates money?

Yes, you read that correctly. Banks create money like magic, but behind every magic spell there is a trick, which we will reveal with the following example: The bank received 100$ as a deposit, loaned 90$ to Mr. Joe and kept a 10% as legal proof. Mr. Joe bought an ice cream machine and the seller of the machine deposited those 90$ in the bank; then the bank loaned 81$ to Margaret, again keeping a 10% as legal proof. With the money, Margaret bought a sewing machine to start up her own business; the seller of the sewing machine deposited that money in the bank, which finally loaned 73$ to Joanne who wanted to start a bakery.

So now let us see how much money the bank created with the initial 100$

90 + 81 + 73 = 244; which is more than half of the original 100$


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