Money Creation

Money creation

The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled.

— John Kenneth Galbraith, Economist

The Problem

If we ever hope to have a sustainable Canadian society we must change, among other things, a systemic flaw in our monetary system: the way we create and circulate money.

  • In Canada, a majority of the money in circulation has been created by private banks out of thin air as interest-bearing loans: money created as debt. 1 In essence, we’re borrowing from the future in the hope that continued economic growth will allow us to pay off this debt.
  • Canadian banks are part of the fractional reserve banking system. In fractional reserve banking, banks have to keep a certain amount of money (a fraction, say 10%) in the bank for every dollar they loan out. But in the 1990s, the reserve requirements in Canada were phased out and today there are none. Reserve requirements normally determine the money supply multiplier effect, which, in Canada’s case, now appears to be infinite.
  • Money to pay the interest on the debt is not created at all and so must come from the money currently in circulation. But that money is already owed because it was created as debt.
  • Because more money needs to be paid back than was borrowed (principle plus interest), the total money supply has to continually increase to avoid loan defaults. That is, the amount of debt has to keep growing simply to put more money into circulation in order to cover the interest owed on past debts. Alternatively, some people must—and do—default on their loans.
  • When someone defaults on their loan, say a mortgage, the private bank will repossess the home. Thus, the bank ends up with real wealth—the house—for simply creating the initial money out of thin air. In other words, the private bank puts essentially nothing of its own assets on the line in the transaction but, in this case, ends up owning a real asset.
  • If the private banks stop giving out loans (i.e., stop putting more money into circulation), the system will collapse, thus the private banks have control over the money supply, not the people of Canada.
  • The amount of debt is always greater than the amount of money in circulation and thus can never be fully repaid.
  • Inflation is inherent in this money creation process as the money supply tends to increase faster than the amount of goods and services available. It is important to understand that this money supply is debt, not wealth.
  • Economic growth is inherent in this monetary system in order to ensure that interest on the debts can be paid, but never ending economic growth is impossible on a finite planet with finite resources (see Economic Growth).
  • When economic growth stops, due to outside factors such as peak oil, the system will begin to collapse.

The Solution

Once a nation parts with the control of its currency and credit, it matters not who makes the nations laws. Usury, once in control, will wreck any nation. Until the control of the issue of currency and credit is restored to government and recognized as its most sacred responsibility, all talk of the sovereignty of parliament and of democracy is idle and futile.

  – William Lyon Mackenzie King, Prime Minister of Canada, 1935

The power to create money is, perhaps, the most important power of a sovereign nation. The following actions will help bring money creation back into the hands of an agency that acts in the interest of all Canadians, rather than the government being beholden to the private lenders as they are today.

  • Government borrowing from private lenders must be forbidden.2
  • The Government, through the Bank of Canada, rather than the private banks, must issue all the money and spend it into circulation free from debt.
  • Inflation would be prevented by tying government taxation and expenditure to the money creation. Remember, it’s not who creates the money that causes inflation, it’s how much is created and how it circulates.
  • The ability of the private banks to create money from thin air would be forbidden; the private banks must stop lending money they don’t have.
  • Because banks can issue loans that are far in excess of their deposits (fractional reserve banking), they can create money. If they only made loans from their money already on deposit, no new money would be created.
  • Private banks would still be able to lend money but they would not be able to create money, they would lend only the money they have on deposit and they would be required to hold 100% reserves.
1 see How the Bank of Canada [and the private banks] Creates Money for the Federal Government: Operational and Legal Aspects. “… money is also created within the private banking system every time the banks extend a new loan, such as a home mortgage or a business loan. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. Most of the money in the economy is, in fact, created within the private banking system.”
2 Ideally, all government borrowing should be forbidden. If the government couldn’t borrow monies, it would have to balance its budgets. Were the government to spent more than its income, politicians would feel immediate voter wrath because the government would have to immediately raise taxes to cover the deficit.

The imperative of perpetual growth implicit in interest is what drives the relentless conversion of life, world, and spirit into money.

— Charles Eisenstein

To understand more about this issue, see the sites and articles below, watch the videos and see also Canada’s federal debt and Economic Growth on this web site.

Web sites and articles


 Money as debt

Money Creation: The Crash Course

The Secret of OZ

The crime of the Canadian Banking System

23 Responses to Money Creation

  1. Charles Mac intyre says:

    The gross miscarriage of justice has to affect everything monetery in Canada and why so many counties in each province is underfunded. It affects our equalization payments. as a member of the NSEFC ( Nova Scotia equalization Fairness committee) we must educate the public and gain the support of all Canadians.

  2. James Tire says:

    Please provide OFFICIAL / legal documentation (sources) that describes in detail the process of money creation; including the legal entities involved in the process as well as how they obtained the power to be a part of it.

    A lot of this information seems to be recycled from the money creation process in the USA. Despite apparent similarities, it is not sufficient to use another country’s system to describe our own.

    I will be looking forward to your reply and sources.

    • Gerry Addy says:

      You can find official documentation regarding money creation in Canada by going to the “Library of Parliament Research Publications” at the following URL:

      The article shows that the Bank of Canada and private banks have the power to create money. It also explains digital accounting and the basis for limitations on private banks.

      Please note this section in particular:
      “However, it is important to note that money is also created within the private banking system every time the banks extend a new loan, such as a home mortgage or a business loan. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.”

    • Mike Phillips says:

      The bank of Canada itself is obligated to send you the proof you are looking for simply for the asking.

  3. Natural Intelligence says:

    this website is topnotch ))

    thanks for making it so understandable to the average person.

  4. Lee Hammond says:

    I was glad to see a Canadian website that dealt with the issue of money which all Canadians need to start understanding. I would like to see any new developments. Thanks

    • Gerry Addy says:

      One new development is the litigation conducted by an organization called COMER. The failure of the lawsuit on February 6, 2016 means the case may end up in the Supreme Court. If you are not familiar with the case, information is available on the internet. There is also a new book called “Public Bank Solutions” by Ellen Brown. She provides a thorough up-to-date account of monetary systems in several countries, including Canada

  5. Da says:

    Could you tell me how of if Canada’s big five private banks are involved with currency creation? I understand that the BOC should be creating currency and that for the government it should be interest free, and that in 1974 that function was outsourced to the private Bank for International Settlements. How does it work now? When the government issues a treasury bond, do they give it to, the BOC or directly to BIS or to the big five in Canada? Who exactly is getting the interest?

    • Gerry Addy says:

      The short answer is that any bank can loan money it can create out of thin air and receive interest for the money provided. Whenever a bank makes a loan it creates the money by simple electronic book entries. An asset is shown as money owed to the bank by the borrower and a debit is shown is shown by the borrower’s deposit of the same money. When the principal is re-payed by the borrower the accounts are both reduced accordingly and the money simply disappears into thin air from whence it came in the first place. In prior times the banks were required to hold some portion of their loans in the form of cash reserves which supported the practice of fractional reserve lending. This requirement was eliminated in the ’90’s. So banks now hold only the reserves they deem prudent.

      If you want to do some reading and study the details, a new book on monetary policy entitled Public Bank Solutions by Ellen Brown is available. It will give you a broad up-to-date picture of monetary systems in effect in several countries, including Canada, and a description of the role of BIS.

      • John Andrew says:

        It being June 2020, I apologize for being a bit late with this comment.

        While I agree with much of what is being said, I think a clarification is in order. I have seen numerous references here and elsewhere to the idea that fractional reserve banking results in the “creation of money”. It seems to me that this is not exactly accurate. If a private bank lends out a percentage of depositors’ money, that money is no longer available for withdrawal from those depositors’ accounts. I think everyone understands this, and accepts the practical principle that in aggregate, depositors rarely want to simultaneously withdraw much more than a relatively small proportion of their deposits. This enables the bank to, in effect, operate as though the money is still in their accounts even though the bank has transferred it to a borrower’s account.

        I think it would be more accurate to say that fractional reserve banking increases the money supply, not by creating additional money, but by accelerating the movement of money through the economy. The effect is much the same, but the actual amount of money existing in the system does not change.

        Of course, this is not to say that banks do not create money out of thin air without reference to deposits or reserves, but if they do this has nothing to do with fractional reserve banking.

  6. Pingback: Canada’s Federal Debt Danielle Magazine

  7. Philippe Desrosiers says:

    Abraham Lincoln and the Greenback.

    Here is the answer to any monetary policy reforms.

  8. Philippe Desrosiers says:

    Stuff They Don’t Want You To Know – Executive Order 11110.

    Another example of debt free monetary policy.

  9. Pingback: Banque du Canada: P E-Trudeau et la Grande Trahison de 1974 | AnonMe

  10. Gideon Semple says:

    What about the treasury board iam sure they have a major role in the canadian montary system to the bank of canada .

  11. Joyce Lee says:

    Thanks for this dialogue. In Victoria there are groups, organizations working on capital. bartering, money creation ie Saltspring $$,community loans etc ways around the established monetary system. Have you looked at theier work?

  12. James Clayton says:

    You might also want to read The End of Money and the Future of Civilization by Thomas Greco.

  13. David Caron says:

    It’s called “Debt Monetization”- all monetization schemes have failed throughout history! There is only 1 “REAL MONEY”; precious metals Gold and Silver for over 6000 years it has never failed. MONEY VS CURRENCY-

    Money is UNENCUMBERED, Currency is not. Currency is not MONEY! However MONEY can be used as currency. All currencies ever created have always reached their intrinsic value of $0. There are still some newly created currencies that are still in use but they ALL have lost most of their value in just a few decades. Take the US FEDERAL RESERVE “NOTE” for example (which is not MONEY); it has lost over 90% of its value in just 100 years!!! Currency is not MONEY but Money can be used as currency. Today’s FIAT Currencies are nothing more than a “Note Of Debt”- They have Monetized debt! All monetization schemes throughout history have failed! Gold and Silver are MONEY, have been for 6000 years, in all that time they have held their relative value (even after centuries of manipulation)! During Roman times the Romans payed their workers an ounce of gold a month and it is said that an ounce of gold could buy a nice Toga and shoes. Today could you survive on an ounce of gold (1700$ Canadian) if you had to, and could you buy a nice suit and shoes for that? The answer is yes, now thats retaining value- after thousands of years!

    Gold is a Tier 1 regulatory capital asset with supreme collateral precedence over foreign currencies and treasuries!!!


    GOLD AND SILVER ARE “MONEY” EVERYTHING ELSE IS JUST CURRENCY! Education is the way to FREEDOM! FREEDOM from our financial oppressors! FIAT is currency created out of thin air in a fraudulent Fractional Reserve System, and if you think that is responsible; YOU ARE DELUSIONAL!

    7 characteristics of REAL MONEY

    (1) It must be durable, which is why we don’t use wheat or corn or rice.

    (2) It must be divisible, which is why we don’t use art work.

    (3) It must be convenient, which is why we don’t use lead or copper.

    (4) It must be consistent, which is why we don’t use real estate.

    (5) It must possess value in itself, which is why we don’t use paper.

    (6) It must be limited in the quantity that is available, which is why we don’t use aluminum or iron.

    (7) It should have a long history of acceptance, which is why we don’t use molybdenum or rhodium.

    Only GOLD and SILVER fit all seven characteristics.

    Mr JP Morgan himself put it so precisely and succinctly: “Money is Gold, and nothing else”.

    ?David Caron?.

    “For the naive mind there is something miraculous in the issuance of fiat money. A magic word spoken by the government creates out of nothing a thing which can be exchanged against any merchandise a man would like to get. How pale is the art of sorcerers, witches, and conjurors when compared with that of the government’s Treasury Department!” — Ludwig von Mises.

  14. Edd Twohig says:

    Canada Infrastructure Bank is the latest attempt to destroy our economy, instead of the B of C creating money for wealth instead of debt.
    Taxation should all be designed to discourage consumption not based on taxing production (income). Tax imports, carbon, natural resources and securities trading.

  15. Brian robertson says:

    I’ve been doing my own research over the last ten years and over the last couple I’ve noticed the increase of misleading and revisions attempts of history on why the central bank was created and put in place to begin with. It was created because the private banks were in complete control over the money system and because there was no rules or over site they were printing money and charging interest and when the stock market crashed in 1929 for the same reasons. When people went to get their hard earned rainy day money out of the banks, guess what, all that paper money is exactly that: paper. With no gold or silver to back up all that fake money the banks, along with the people money, collapsed wiping out the North American financial market. Thus the bank of Canada was formed to protect the people and safe guard the money supply in Canada. The very first and most important part of the many banking reforms in the charter of the central bank was to take the ability of creating money out of the hands of the private banks (basically never putting the chicken hawks in charge of the chickens ever again), second was that the great privilege we allow the private banks to be our intermediates in the money system they are allowed to re lend our deposits 9 times over and charge interest but must keep 10% of all loans to make sure what happened in the run on banks in 1930s would be mediated. Third, the banks were restricted to stay in their lanes, i.e. insurance, hedge funds, etc. Banks are to just bank and nothing more and the main reason for this is insider trading because the banks know how much you make and how much you can spend thus giving them unfair advantage. And from 1938 when the monarchy and the Canadian oligarchs handed control of the central bank over to the people of Canada to gain favour with the prime minister king and the people of Canada because they were going to need Canada’s help once more in the coming war. Half of Canadians were sick of war. The young men who fought in World War One—we would consider them boys in today standards—the crown and government now-wanted the survivors to send them their oldest sons to the same war where the advancement of war have increased 10 fold. And it’s because of the handing over of the central bank from private oligarchs hands to the people of Canada, that Canada take its first step towards self governance and democracy. From 1938 until 1974 the people of Canada not only funded and helped win the war but the country then turned from the 4th largest industrial war producer to a global superpower in commercial goods all funded through the people’s bank of Canada. It wasn’t until 1980s that the monarchy and the Canadian oligarchs gave up the last of the their claim on our sovereignty. But before that, in 1974, the government gave back control of the monetary system to the private banks and one by one all the restrictions put in place by the banks charter had all been dismantled and instead of borrowing all government money from the people’s bank at very low interest rates and to be paid back, the government now forced the tax payer to borrow from the private banks at the maximum interest that went from around 2% from the people’s bank to 20% in 6 years from 1974 to 1980 (1000% increase) with no time line to be paid back. Because their intent was to never be paid back, it was to create as much debt as fast as possible before a new government or even the people in the exciting government and surely before they gave over complete control to the Canadian people to be our own self governing country. Deliberate and with purpose our national debt went from a stable 30 billion over 100 years, two world wars, and the expansion and creation of this great country, to 100 billion in less than ten years. 70 billion of the 30 billion was created out of thin air with compounded interest at 20% and they held it there until 1992. When the government’s financial report was leaked to press, it read that out of the 400 billion dollars now owed to the public banks only 37 billion was actually borrowed to make up for short comings of the annual budget. And it was then and only then that the banks and the central bank and the government came to an agreement to lower the interest rates to what we basically see today (because you can sheer a sheep over and over but you can only eat it once). If the government didn’t finally do something in 1992 the 400 billion dollar debt would double every 4 years at 20%. So if nothing was done, by 1996 the debt would of been 800 billion at 20% interest equals 160 billion a year. But as you can see the damage was already done and the people of Canada were now forever indebted to the private banks and one by one all the restrictions put on the private banks have been dismantled. Increasing the wealth and power over every thing in Canada, at any time the libs or the cons could have stopped borrowing from the private banks, especially in 1980 when the interest payments due was bigger than the amount borrowed. Hmm, do I keep borrowing at 20% interest which we can’t pay and the net effect is the debt double every 4 years or borrow from the people’s bank at 2% where as the fed and prov governments have a time line to be re paid not to burdened future generation with that’s generation debt. Prime minister king said in 1935, when the monarchy and the Canadian oligarchs decided to keep the central bank firmly in their control, that if the country is not allowed to control its own financial and money supply it matters not who makes the laws or governs if they are beholden to a foreign power. But even with the backing of the people of Canada and the prime minister and the democratic elected officials we did not live in a democracy in 1935. And every thing we call a democracy in Canada has been fought for tooth and nail over 150 years only to be sold out for greed by our politicians in 1974.

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