Commercial bank money

The term “commercial bank money” describes the portion of a currency which is made of debt generated by commercial banks. It is the opposite of “central bank money” or “sovereign currency”, which is issued by a central bank, such as the Swiss National Bank in Switzerland or the Federal Reserve Bank in the U.S.

Commercial bank money is created when banks make use of fractional reserve banking to issue loans worth many times the value of the actual sovereign currency they hold (typically up to 10 times more).

When a bank lends out money which it does not actually have, that money is generated as scriptural money, meaning it only exists “on paper”. This commercial bank money currently makes up a large part of the money in circulation.

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