Money Creation

Banks create money. This fact is now well accepted after the Bank of England published an article describing how banks created money. This paper demonstrates how shadow banking also creates money. However, not all shadow banking money is newly created; some are cannibalised from traditional banking. This paper also shows that the stock of shadow banking money is growing faster than the stock of traditional banking money. These facts, that shadow banking creates money and that it is growing faster than traditional banking money, have implications regarding differences in access to finance among households, SMEs, and large corporations.