The biggest difference between bond issuers is that greater trust leads to lower interest rates and thus cheaper borrowing. For example, the US government sells bonds with lower interest rates than any company - buyers demand more return for a corporate bond, because a corporation is more likely to go bust.
For simplification, there are two kid of moneys, the 'government money' and the 'lending money' (my terminology).
Government money would be: cash and reserves.
Reserves come from two sources (both are the government) the Central Bank and the treasure. So, when the treasure spend in the economy is creating government money. Also, when the central bank 'give' reserves to the private banks is creating money. When the govenrment tax is destroying money and when the Central Bank retire reserves of the system is destroying money.
The 'lending money' is created by the private banks when lending, but it disappears when the money is payed back. This is a different kind of money, a less 'real' money if you want.
You can find more information in many places. For instance:
https://monetary.org/wp-content/uploads/2016/03/money-creati...
Your friend has no money, but needs some.
You lend him your dollar.
Have you created money?
The IOU is an account balance. Have I created money?
Technically speaking, yes! (Neat, huh?)
If the IOU is accepted as currency, that is. You have rights to the original dollar and the borrower has rights to the IOU. Practically speaking, however, you haven't created money because nobody treats your IOU as money.
(Side note: this isn't a stupid question and doesn't deserve to be downvoted.)
In a bank, Person A gives the bank a dollar, the bank loans out (let’s say the full dollar for simplicity) and, some steps later, the dollar is out back into the bank (let’s say person B does this for simplicity).
Both A and B have title to a dollar, so yes, there’s more than one.
The bank created it by creating a liability for themselves. This is ok because long term the loaning of the dollar should create more than a dollar in value, so the liability will be covered.
Banks don't lend out balances. "Banks lend out balances" is just an analogy. (It was truer under the gold standard.)
Banks create money through lending and destroy money via write-offs. Periodically (in the U.S., at the end of the day) banks count up what they owe and what they're owed and make sure the ratio is legal. If not, they borrow (from each other or from the Fed) to make up the difference.
(For monetary purposes, savings accounts are checking accounts. Banks don't segregate savings from their balance sheets. Balances in savings account can be withdrawn just as easily as those in checking accounts.)
There are different definitions of money and saving accounts are included in M2 (“money and close substitutes”) but not in M1.
What about time deposits? For short maturities they are included in M3. And what about longer term depositss? Are banks creating money when they lend those out?
You're hanging on to the "banks lend out deposits" mental model. Stop that. The Bank of England has an accessible write-up on this: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-....
Loans create deposits. Whether those deposits then end up in a checking account through a payroll service or a vendor's savings account through a payment for goods and then transfer is irrelevant.
A bank making a loan is trading one asset, cash, for another asset, a loan. If that's "creating money", then doesn't that imply that a loan is "money" and cash is not "money"?
The money lent does not go away when the check or whatever is cashed at another bank. The reserves follows the check. We're just working with more balance sheets now.
As long as the loan asset remains in the books, it earns interest which will add to bank equity.
We can keep bringing up details, but the basics remain the same. Bank lending creates money.
In fact banks also create money when they take cash deposits (and destroy money when they hand out cash).
If I deposit a $100 bill into a bank we’re increasing the money supply because I have $100 and so does the bank (until it spends it, trades it for a non-money asset or lends it out).
When a loan is taken, it is usually not taken just to sit in a bank account, it is to be spent. When that happens (by cash withdraw or transfer to a different bank), a bank must release/transfer base money, which it can get from cash deposits, incoming transfers or in exchange for some other assets.
Therefore, although banks create M1 money by lending, they are limited in practice by necessity to keep balance of base money. So it is more a distributed/emergent behavior, where each bank ability to create M1 money is limited by its market share and the rate of money production by other banks.
Down the line you suggested depositing money creates money because now you and the bank have a dollar. That’s not true, because the bank doesn’t have title to the dollar.
(And can deposit it at the federal reserve, if somehow you don’t think actual money is good enough to qualify as money.)
Custody isn’t title.
The deposit is their liability (obviously they can't spend it). The dollar is their asset. When you deposit the money into a bank that dollar is not yours anymore, the bank is not keeping it in custody for you.
Voila, new money!
From the Bank of England, banks are not intermediaries of loanable funds:
https://www.bankofengland.co.uk/working-paper/2015/banks-are...
The more details are given, the less interesting the special powers of commercial banks seem to be: not only is the amount of money that they can create limited to some multiple of the "real money" base, but they don't even lend that much out because it's not profitable.
The monetary base (physical currency plus banks deposits at the Fed) is currently $3.3tn.
M1 (circulating cash plus on demand deposits) is $3.9tn (the money multiplier is slightly above 1, but it was below 1 for most of this decade!).
M2 (including also savings accounts) is $14.9tn. M2/MB is 4.5, it has ranged between 3 and 5 over the last 10 years. It was between 8 and 12 in the four decades before 2008.
Central banks do have that special power, they can literally create money out of nothing. A normal bank can lend out a $, but they need to have taken a $ deposit, and it stays on the banks balance sheet.
Normal banks special powers are turning risky illiquid debt and making it appear risk free and liquid to depositors.