JUNE (not certain of exact date), 1992- UPDATED PUBLICATION OF MODERN MONEY MECANICS BY THE FEDERAL RESERVE BANK OF CHICAGO

1992- UPDATED PUBLICATION OF MODERN MONEY MECANICS BY THE FEDERAL RESERVE BANK OF CHICAGO
“The actual process of money creation takes place in commercial banks. Banks can build up deposits by increasing loans and investments…This unique attribute of the banking business was discovered several centuries ago…At one time, bankers were merely middlemen. They made a profit by accepting gold and coins for safekeeping and lending them to borrowers. But they soon found that the receipts (bank notes or IOUs) they issued were being used as if they were a means of payment. These receipts were acceptable as if they were money since whoever held them could go to the banker and exchange them for metallic money…Then bankers discovered...that they could make loans merely by giving borrowers their promises to pay (bank notes). In this way banks began to create money...More notes (IOUs) could be issued than the gold and coin on hand, because only a portion of the notes outstanding would be presented for payment at any one time...Demand deposits (checks) are the modern counterpart of bank notes. It was a small step from printing notes to making book entries to the credit of borrowers, which the borrowers in turn, could 'spend' by writing checks.”