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Author Topic: How is fiat money created and destroyed?  (Read 223 times)
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June 21, 2016, 10:56:11 PM

Hey all,

I'm trying to find out how our fiat currencies work.
The issue of course I'm interested in is the idea of money being created that does not get into the hands of all of its users.

As far as I understand things now, central banks create money through loans, and destroy money on repayment of these loans. However, these banks also ask for interest.
As I understand, money supposedly gets destroyed when being used to repay a loan, but I'm guessing that does not include the interest itself.
If so, who receives this interest?
A commercial bank probably really loans money it really owns, with the interest simply serving as an income for the commercial bank.
But since the central bank does not own the money, I guess it means that they get to earn new money without any risk at all (provided they receive the interest).

To state my question, is the issue here that new money is created that is only received by, say, its creators?
Or is it simply that the money in circulation is nothing more than money sneezed into existence by loans, whereby the fact that each loan created a debt higher (due to the interest of it) than the amount received, and thus only creating loans to satisfy these debts?
Or are there perhaps other issues with fiat currencies that I'm not seeing as well?

I'd like to hear your insights, and preferably with some (good) sources to back them up, so that I can find more about how exactly our financial system is working at this time.
Thank you very much.
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