THE PROCESS OF DEPOSIT CREATION

In our discussion of goldsmith banks, we suggested that banks turn reserves into bank money. There are, in fact,  steps in the process.

• The central bank determines the quantity of reserves of the banking system. The detailed process by which the central bank does this in the ‘next chapter.

• Usig those reserves as an input, the banking system transforms them into a much larger amount of bank money, The currency plus this bank money is the money supply, MI’ This process is called the fIlultiple apansior & oj a..t dIJIosils

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