HOW Money is Created

In our economic system, the presence of money is felt everywhere; indeed, a world without money would be quite difficult to even imagine. Practically all of our daily transactions, from the most menial trip to the supermarket to the purchase of office buildings and the financing or whole armies are exchanges between money and goods or services. In ancient times, the total supply of money was essentially equal to the total supply of goods to be traded. Over time, new structures were devised to improve on the barter-based economy. Long time ago, most economies in the world were under the “Gold Standard”, basically tying the supply of money to the amount of gold the country owned. Under the gold standard, currency issuers guarantee to redeem notes, upon demand, in that amount of gold.

Today’s standard is called in economics, “fiat currency”. Fiat money is money that has value primarily because a government demands it in payment of taxes, and that government has credible enforcement of its demand. It basically has value because the public has a collective belief in the credibility of the entity printing the currency.

Former US Federal Reserve Chairman Alan Greenspan once argued, before the advent of monetarism, that:

"Under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth... The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit... In the absence of the gold standard, there is no way to protect savings from confiscation through inflation”

Banking and Finance are fascinating yet complex subjects. This documentary presents in layman’s terms how money is actually created out of literally nothing, and how our whole financial system is so dependent on the public’s confidence in our currency and nothing more.