How banks create
money
What is money?
Notes
Coins
Current deposits （活期存款）
other deposits with banks（银行的其它存款）
Currency(现金 )
M3 = C + D
A world without any banks
The supply of money is $100.
C= $100
D= $0
The First Bank
Reserves $100 Deposits $100
ASSETS(资产 ) LIABILITIES（负债）
C= $ 0
D= $100
M= $100
If banks hold all deposits in
reserve,banks do not influence
the supply of money.
如果银行持有 100%准备金，银行不影响货币的供给。
Summary
Why not use some of money
to make loans?
Let’s suppose that The First Bank decides
to keep 10% of its deposits in reserve and
to loan out the rest.
10% is called reserve ratio（准备金率）,
Reserve ratio is the fraction of deposits
that banks hold as reserves.
准备金率是准备金占存款的比率
R=Reserves/deposits=准备金 /存款额
一般由中央银行规定，所以通常叫法定准备金率（ required reserve ratio）
Now let’s look at the balance sheet of The First Bank again.
Reserves 10%*$100= $ 10 Deposits $100
Loans 90%*$100= $ 90
D= $100
C= $ 90
M= $ 190
The First Bank creates an additional $ 90 of money.
ASSETS LIABILITIES
The First Bank
When banks hold only a fraction of
deposits in reserve,banks create
money.
如果银行只持有部分准备金，银行创造了货币，银行新创造的货币额，
刚好等于银行提供的贷款额。
Summary
Now let’s look at the balance sheet of The Second Bank,
Reserves 10%*$90= $ 9 Deposits $90
ASSETS LIABILITIES
Loans 90%*$90= $ 81
D= $190
C= $ 81
M= C+D= $ 271
The Second Bank
The Second Bank creates an additional ￥ 81 of money.
Reserves 10%*$81= $ 8.1 Deposits $81
ASSETS LIABILITIES
Loans 90%*$81= $ 72.9
D= ￥ 271
C= ￥ 72.9
The Third Bank
The Third Bank creates an additional ￥ 72.9 of money.
The process goes on and on.
Each time that the money is deposited
and a bank loan is made,more money is
created.
How much money is eventually
created in this economy?
Original deposit = $ 100
The First Bank’s lending = $ 90
The Second Bank’s lending = $ 81
The Third Bank’s lending = $ 72.9…..
The money supply = $ 1000
The amount of money the banking
system generates with each yuan is
called the money multiplier(货币创造乘数 ).
What determines the size of the money
multiplier?
The money multiplier is the
reciprocal of the reserve ratio.
货币创造乘数是准备金率的倒数。
Money multiplier = 1/R
R=10% Money multiplier = 10
R=20% Money multiplier = 5
Excess reserves(超额准备金 )
Excess reserve ratio(超额准备金率 )
K=1/(R+Re)
Money multiplier decreases.
money
What is money?
Notes
Coins
Current deposits （活期存款）
other deposits with banks（银行的其它存款）
Currency(现金 )
M3 = C + D
A world without any banks
The supply of money is $100.
C= $100
D= $0
The First Bank
Reserves $100 Deposits $100
ASSETS(资产 ) LIABILITIES（负债）
C= $ 0
D= $100
M= $100
If banks hold all deposits in
reserve,banks do not influence
the supply of money.
如果银行持有 100%准备金，银行不影响货币的供给。
Summary
Why not use some of money
to make loans?
Let’s suppose that The First Bank decides
to keep 10% of its deposits in reserve and
to loan out the rest.
10% is called reserve ratio（准备金率）,
Reserve ratio is the fraction of deposits
that banks hold as reserves.
准备金率是准备金占存款的比率
R=Reserves/deposits=准备金 /存款额
一般由中央银行规定，所以通常叫法定准备金率（ required reserve ratio）
Now let’s look at the balance sheet of The First Bank again.
Reserves 10%*$100= $ 10 Deposits $100
Loans 90%*$100= $ 90
D= $100
C= $ 90
M= $ 190
The First Bank creates an additional $ 90 of money.
ASSETS LIABILITIES
The First Bank
When banks hold only a fraction of
deposits in reserve,banks create
money.
如果银行只持有部分准备金，银行创造了货币，银行新创造的货币额，
刚好等于银行提供的贷款额。
Summary
Now let’s look at the balance sheet of The Second Bank,
Reserves 10%*$90= $ 9 Deposits $90
ASSETS LIABILITIES
Loans 90%*$90= $ 81
D= $190
C= $ 81
M= C+D= $ 271
The Second Bank
The Second Bank creates an additional ￥ 81 of money.
Reserves 10%*$81= $ 8.1 Deposits $81
ASSETS LIABILITIES
Loans 90%*$81= $ 72.9
D= ￥ 271
C= ￥ 72.9
The Third Bank
The Third Bank creates an additional ￥ 72.9 of money.
The process goes on and on.
Each time that the money is deposited
and a bank loan is made,more money is
created.
How much money is eventually
created in this economy?
Original deposit = $ 100
The First Bank’s lending = $ 90
The Second Bank’s lending = $ 81
The Third Bank’s lending = $ 72.9…..
The money supply = $ 1000
The amount of money the banking
system generates with each yuan is
called the money multiplier(货币创造乘数 ).
What determines the size of the money
multiplier?
The money multiplier is the
reciprocal of the reserve ratio.
货币创造乘数是准备金率的倒数。
Money multiplier = 1/R
R=10% Money multiplier = 10
R=20% Money multiplier = 5
Excess reserves(超额准备金 )
Excess reserve ratio(超额准备金率 )
K=1/(R+Re)
Money multiplier decreases.
