How Do Banks Create Money? A Walk-Through of Richard Werner's Papers?

Banks create money by lending it to people, just like when you borrow a toy from your friend and now have two toys to play with.

Imagine you go to a bank and ask for a loan to buy a new bike. The bank says yes! They give you money to pay for the bike. But here’s the cool part: the bank doesn’t need to have that money already, they just make it up out of thin air, like when you draw a picture on a blank piece of paper.

When the bank gives you money, they also create a debt, that means you now owe them money. So, even though they only had one toy (the money), now they have two: the real money and your promise to pay back the loan.

The same thing happens with other people too! When someone else takes out a loan for a new video game or a bigger house, the bank creates more money again, each time it loans something out, it adds more coins into the world.

It’s like having a piggy bank that never runs out. Every time you borrow from it, it gets bigger! Banks create money by lending it to people, just like when you borrow a toy from your friend and now have two toys to play with.

Imagine you go to a bank and ask for a loan to buy a new bike. The bank says yes! They give you money to pay for the bike. But here’s the cool part: the bank doesn’t need to have that money already, they just make it up out of thin air, like when you draw a picture on a blank piece of paper.