making money out of nothing

Chart and the following quotes are taken from OneGoodCut:

Bank of England 2007 Q3 Quarterly Bulletin, p 377:

“When banks make loans, they create additional [bank] deposits for those that have borrowed the money”

Bank of England 2007 Q3 Quarterly Bulletin, p 405:

“The money-creating sector in the United Kingdom consists of resident banks (including the Bank of England) and building societies”

Bank of England 2007 Q3 Quarterly Bulletin, p 378:

“… changes in the money stock [i.e. the total amount of money in the economy] primarily reflect developments in bank lending as new deposits are created.”

Paul Tucker, Deputy Governor of the Bank of England and Member of the Monetary Policy Committee - Speech to BGC Partners, 21 January 2010.

“…banks extend credit [make loans] by simply increasing the borrowing customer’s current account…That is, banks extend credit by creating money.”

Martin Wolf, Chief economics editor of the Financial Times (9th November 2010)

“The essence of the contemporary monetary system is creation of money, out of nothing, by private banks’ often foolish lending…”

Question from OneGoodCut to the BOE:

“When a commercial bank makes a loan to a borrower, does the commercial bank in effect create new money? In other words, when a bank makes a loan to a borrower, is that ‘money’ just created out of thin air?”

Bank of England response:

“When banks make loans, commercial banks do indeed create much of the money in the economy.”