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Towards an institutional “landscape” view of modern money creation mechanisms and some reflections on their ecological significance

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journal contribution
posted on 2023-06-10, 06:40 authored by Andrew HookAndrew Hook
In recent years, a number of different strands within heterodox economic thinking have successfully provided more empirically robust and sociologically informed analyses of how money gets created. However, there is a tendency within these analyses to discuss the different money creation theories and institutional practices in isolation, inhibiting a broader audience from grasping the whole institutional picture. By integrating contemporary heterodox theories and the latest empirical evidence, this article therefore attempts to develop a “landscape” view of modern money creation that visualizes and explains the different ways that modern money is created. It suggests that, while it is ultimately only commercial banks that can “create” new bank deposits in customers’ accounts, this may be initiated by one of three institutional mechanisms: by customers “borrowing new money into existence” when commercial banks make loans; by central banks creating new money when they purchase assets such as government bonds from investors; and by the government “spending new money into existence”. The article also reflects on how a clearer institutional understanding of these processes may be helpful in improving our overall capacity to think about how money creation may better serve current urgent social and environmental needs, especially in the post-COVID-19 context.

History

Publication status

  • Published

File Version

  • Published version

Journal

Sustainability Science

ISSN

1862-4065

Publisher

Springer Science and Business Media LLC

Department affiliated with

  • Geography Publications

Full text available

  • Yes

Peer reviewed?

  • Yes

Legacy Posted Date

2023-04-12

First Open Access (FOA) Date

2023-04-12

First Compliant Deposit (FCD) Date

2023-04-12

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