Definition
Most of the money people use is created by ordinary banks when they make loans, not printed by the government.
The story
When a bank approves a $20,000 car loan, it doesn't hand over someone else's savings; it adds $20,000 to the borrower's account, and that deposit is new money. Repaying the loan removes it again. The Bank of England explained this in a 2014 paper. The central bank shapes how much lending happens mainly through interest rates.
Why markets watch it
It's why interest rates matter so much: they influence how much new money banks lend into existence.
See it in the story
Connects to
We explain why it moves markets. What you do with it is your call. Commentary and education only. Not financial advice. All terms