If banks have the legal entitlement to lend out deposits this means new deposits may be created, causing inflation. Many new deposits may be created even if the sum of base money remains the same.
This is not a benevolent process if deposits are guaranteed, deposits are diluted (we have no choice but to use this currency) which might result in monetisation by the central bank. As a result of banks being able to loan deposits, the currency no longer remains a store of value.
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