Money Creation in Fiat and Digital Currency Systems

41 Pages Posted: 6 Feb 2020

See all articles by Marco Gross

Marco Gross

International Monetary Fund (IMF); European Central Bank (ECB)

Christoph Siebenbrunner

University of Oxford - Mathematical Institute

Date Written: December 2019


To support the understanding that banks' debt issuance means money creation, while centralized nonbank financial institutions' and decentralized bond market intermediary lending does not, the paper aims to convey two related points: First, the notion of money creation as a result of banks' loan creation is compatible with the notion of liquid funding needs in a multi-bank system, in which liquid fund (reserve) transfers across banks happen naturally. Second, interest rate-based monetary policy has a bearing on macroeconomic dynamics precisely due to that multi-bank structure. It would lose its impact in the hypothetical case that only one ('singular') commercial bank would exist. We link our discussion to the emergence and design of central bank digital currencies (CBDC), with a special focus on how loans would be granted in a CBDC world.

Keywords: Central banking and monetary issues, Financial crises, Central banks, Financial institutions, Macroprudential policies and financial stability, Money creation, monetary policy, central bank digital currencies, WP, money stock, intermediation, physical cash, liquid fund

JEL Classification: E12, E42, E5, G21, E01, E52, M41, F16

Suggested Citation

Gross, Marco and Siebenbrunner, Christoph, Money Creation in Fiat and Digital Currency Systems (December 2019). IMF Working Paper No. 19/285, Available at SSRN:

Marco Gross (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Christoph Siebenbrunner

University of Oxford - Mathematical Institute ( email )

Andrew Wiles Building,
Radcliffe Observatory Quarter, Woodstock Rd
Oxford, OX2 6GG
United Kingdom

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