bankgeld

Bankgeld, or bank money, refers to money created by commercial banks when they issue loans and create new deposits in customers’ accounts. It contrasts with central bank money, which consists of banknotes and central bank reserves. In a modern fiat system, most money in circulation is bank money rather than physical cash.

When a bank approves a loan, it credits the borrower's account with a deposit. This bookkeeping entry increases the money supply even though no physical cash changes hands. The borrower can spend the funds, and the recipient's bank may re-credit or settle. The bank's balance sheet shows an asset (the loan) and a matching liability (the deposit).

Bank money is endogenous; it is created in response to demand for loans and is influenced by monetary policy, bank capital requirements, and liquidity conditions. Central banks influence bank money by setting policy rates, reserve requirements, and providing liquidity; they do not simply print money.

Key concepts include M1, which covers cash and checkable deposits, and broader measures like M2, which rise with bank lending. Critics warn that excessive bank money creation can contribute to credit cycles and inflation, while prudent regulation aims to ensure financial stability and solvency.

Bank money is central to discussions of monetary policy and financial stability, illustrating the interdependence of banks, households, and firms in the creation of purchasing power within an economy.