The same place the money comes from to pay for any goods or services. Interest is simply the bank's mark up on the service it supplies just like a shop's mark up. There's nothing magical about interest or indeed about money which prevents it from being traded like anything else.




Cheers, however I am aware of what happens in reality. I was just intrigued as to how it works in the fictional scenario of banks creating money from nothing.

Yes.

They get to buy their services with their big, tax payer funded, bonus payouts. So they do indeed get the chicks for free because you are paying for them instead.

Forget the fractional reserve system, thats from yesteryear.

Banks now just create money from nothing, then go into the interbank lending markets and loan the money needed to cover their reserve ratios. That's how Northern Rock was sunk, nobody would lend them the money.

They were borrowing money on the markets. That's just the same as me borrowing a fiver from you.

In my opinion understanding how money is created and destroyed is the number one political question.

Why do we let private banks control the money supply? Why do governments continue to borrow debt based money from private banks when they could create the money themselves?

Banking 101 www.positivemoney.org.uk/how-ban ... ce-sheets/ This is my understanding of how the banking system works at present. If anybody can point out any inaccuracies in the article I'd be interested to hear them.

Banking 101 www.positivemoney.org.uk/how-ban ... ce-sheets/ This is my understanding of how the banking system works at present. If anybody can point out any inaccuracies in the article I'd be interested to hear them.