Summary of El proceso de creación de dinero

The video explains the process of money creation by banks, highlighting how banks create money "out of nothing" through lending and the reserve system.

Main Financial Strategies and Concepts:

• Bank Deposits and Reserves: When savers deposit money in banks, the bank does not keep all the money in cash but retains a fraction as reserves (e.g., 20%) to meet withdrawal demands.
• Money Creation Through Loans: The remaining money (after reserves) is lent out to borrowers (families, businesses), who then deposit the loaned money into banks, restarting the cycle.
• Money Multiplier Effect: This process repeats multiple times, with each new deposit being partially reserved and partially lent out, creating more money in the economy than the initial deposit.
• Reserve Ratio (Legal Cash Ratio): The percentage of Deposits banks must keep as reserves, legally mandated (e.g., 20% in the example).
• Bank Multiplier Formula:
  Bank Multiplier = 1 / Reserve Ratio
  This formula determines how many times the initial deposit can be multiplied in the banking system.
• Total Deposits Calculation:
  Total Deposits = Initial Deposit × Bank Multiplier
• Loans Created:
  Loans = Total Deposits - Reserves

Step-by-Step Money Creation Process (Example with 20% Reserve Ratio):

1. Initial Deposit: Marina Deposits €1,000 in Unicaja bank.
2. Reserve Requirement: Bank saves 20% (€200) as reserves.
3. Loan Issuance: Bank lends out the remaining €800 to Juan.
4. Re-deposit: Juan spends €800 at a motorcycle dealership, which Deposits it in Santander bank.
5. Repeat Reserve and Loan: Santander keeps 20% (€160) and Loans out €640 to Antonio.
6. Cycle Continues: Antonio spends €640, which is deposited again, and the process repeats.
7. Geometric Progression: Each cycle creates smaller new Deposits and Loans, decreasing by the Reserve Ratio.
8. Using the Bank Multiplier: Instead of calculating many stages, use the multiplier to find total Deposits and Loans quickly.

Key Insights:

• The total money created is a multiple of the initial deposit.
• Banks only keep a fraction of Deposits as reserves, trusting that not all depositors will withdraw money simultaneously.
• The system relies heavily on trust from savers to keep money in banks.
• If many savers withdraw simultaneously, banks can borrow cash from other banks to meet demands.
• Money creation is fundamentally tied to the lending activity of banks.

Presenters / Source:

• The video is presented by a teacher named Javi, who guides through the explanation and examples.

Category

Business and Finance

Video