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The purpose of this booklet is to describe the basic process of money creation in a "fractional reserve" banking system. The approach taken illustrates the changes in bank balance sheets that occur when deposits in banks change as a result of monetary action by the Federal Reserve System
neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bill is just a piece of paper, deposits merely book entries. Coins do have some intrinsic value as metal, but generally far less than their face value.
It (the bank) must maintain legally required reserves, ...equal to a prescribed percentage of its deposits.
...Under current regulations, the reserve requirement against most transaction accounts is 10 percent.
Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts.
Originally posted by Unknown Perpetrator
If the banks opened the floodgates then inflation would go through the roof. If the banks do start lending to each other as normal it would only compound the US debt problem.