How is money really created?

Well, not necessarily as textbooks suggest. In the newly published Quarterly Bulletin 2014 Q1 of the Bank of England, an interesting aritcle by three members of the Bank’s Analysis Directorate highlights the real mechanism behind money creation, which is usually presented based on misconceptions, as the authors see it. The article reviews the effects of the central bank’s monetary policy on money creation and the commercial banks’ role in it. See the introductory article and the main article from the bulletin.

The whole bulletin is available on the central bank’s website.