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

In 2014, Prof. Richard Werner provided the first empirical evidence that banks create credit out of thin air... They do this whenever they issue a loan or, more specifically, purchase a promissory note. This is a walk-through of exactly how they do it. Note: In the example where the small business pays a supplier at another bank, it is possible, and likely, for banks to change the liability from ’small business’ to ’bank B’ instead of drawing down cash. ’The bank now owes the other bank £10M’. I apologise for the poor audio quality, I’ve ordered a new microphone for future videos.