> So let’s look at a dollar traveling through the system. The Fed decides that $1, yes one more dollar, needs to be added to the economy and then everything will be dandy. The Fed purchases a Treasury bill from Bank X for $1, putting $1 on the deposit side of X’s ledger (remember, no physical currency is involved here). Bank X, subject to a 10% reserve requirement, is then free to lend out, that is create deposits, representing up to $10. The Fed “created” $1 but the commercial bank, X, “created” $9.
I'm confused. This seems to imply that commercial banks can magically credit their customers with $10 just because they happen to have $1.
I'm not able to do that. If I want someone else to have $10, I have to hand or wire them $10 in currency.
I'm confused. This seems to imply that commercial banks can magically credit their customers with $10 just because they happen to have $1.
I'm not able to do that. If I want someone else to have $10, I have to hand or wire them $10 in currency.
Do commercial banks really get to do this?