Question

5. Who creates money in modern economies?

Answer 1

Most of the money in the modern economy is created by banks. Banks create money in the form of bank deposits and through the process of credit creation. Banks create new money whenever they extend loans. In the process, banks keep a certain percent of the primary deposits as reserves and use the remaining percent for offering loans (knowns as secondary deposits). In fact, 97% of the money in the economy today exists as bank deposits, and just 3% is physical cash.