Thu, 09 Dec 2021 11:00 Money Creation - Myths and Reality by Michael Kumhof (Bank of England)

Money creation is typically misrepresented in economics textbooks, and as a result also in popular understanding. The two most common misrepresentations are: (1) That banks receive deposits when households save, and then lend them out. Instead, new bank loans create new deposits, and repayment of bank loans extinguishes deposits. (2) That the central bank either fixes the amount of money in circulation, or that a given amount of central bank money is multiplied up into more loans and deposits. Instead, the quantity of money in circulation is mainly determined by the commercial decisions of banks, but with monetary policy and prudential regulation acting as constraints on private money creation. The author will discuss the mechanics of money creation in the modern economy, with an application to CBDC, a potential new form of central bank money.

Speaker Bio:

Michael Kumhof is Senior Research Advisor in the Research Hub of the Bank of England. He is responsible for co-leading this unit, and for helping to formulate its research agenda. His previous position was Deputy Division Chief, Economic Modeling Division, IMF, where his responsibilities included the development of the IMF’s global DSGE simulation model, GIMF. His main research interests are monetary reform (including central bank digital currencies and full reserve banking), the macroeconomic implications of the fact that banks are creators of money rather than intermediaries of savings, the role of economic inequality in causing imbalances and crises, and the macroeconomic effects of fossil fuel depletion. Michael taught economics at Stanford University from 1998 to 2004. He worked in corporate banking, for Barclays Bank PLC, from 1988 to 1993. His work has been published by AER, JME, AEJ Macro, JIE, JEDC, JMCB, EER, and Journal of Macroeconomics, among others. Dr. Kumhof is a citizen of Germany.

Venue: Online