Competition in the monetary system
25 August 2021
Bottom Line
Commercial banks create new money out of nothing when they provide credits. Central banks create money to support commercial banks’ role in this process and influence how much money they can lend. Since 2008, most of the economic growth is financed by money creation (credit). For a debt-dependent economy to grow, new money (credit) should exceed debt reimbursement in the long run. Inadequate allocation of credit could lead to speculative bubbles and financial crises.
A more competitive environment is shaping up, with Central banks/public banks/tech firms leveraging innovation and technology to ensure more efficient transfers to the real economy. Simplified lending and more efficient payment and money transfer mechanisms may contribute to providing a more stable economy.
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