Originally posted by Nicolas06 But banks literally create money when you take a mortage (that what define a bank legally: the right to do exactly that). And a central Bank just add numbers on their computer to emit more money to regulate things
In a Fractional Reserve Currency system, yes. Money is created in the sense that only a 'reserve' against Demand Deposits (for instance, transactional, or checking account deposits) must be kept in the bank. If new deposits (Reserves) come into the bank, a portion of the Reserves must be held and the rest of the deposits (Excess Reserves) can be lent. Of course the new money (from the loan) is deposited somewhere, and only part of THAT deposit must be reserved, so the rest of THAT can be lent. This process continues to its logical fractional end - it is called the
deposit expansion multiplier.
The lower the 'Reserve Ratio' set by the Central Bank, the higher the new money created when new reserves are deposited.
Since 2008 Fed management of Bank Reserves in the US Banking system has become highly complex and, some would say, arbitrary and capricious.