✅ Why bank-money creation is legal — the “trick” is accounting + license
- According to the Bank of England, when a commercial bank issues a loan, it simultaneously creates a deposit in the borrower’s account — i.e. a new bank deposit that did not exist before. That new deposit counts as money. Source
- On the bank balance sheet, this works via double-entry bookkeeping: the loan is recorded as an “asset” for the bank (because the borrower promises to repay), and the deposit is recorded as a “liability” (the bank owes that deposit to the borrower). Source
- From a macroeconomic perspective, this increases the broad money supply (i.e. deposits, electronic money in accounts) — even though no printing press or central-bank note was involved. Source
- Crucially: this is all regulated and authorized. Commercial banks operate under a banking licence granted by the Bank of England (or equivalent central bank in other countries). As long as they follow capital, liquidity, and regulatory rules, this “money creation by lending” is considered sound and legitimate. Source
So the “magic” lies in the combination of:
(a) recognized accounting rules,
(b) legal backing/licence,
(c) legitimacy of bank-issued deposits as valid money, and
(d) oversight by central bank regulators.
Because of those, the money created is “real” money, not a forgery or counterfeit.
🔎 Why this is not the same as counterfeiting — what makes counterfeiting illegal
- Counterfeiting involves unauthorized reproduction of a state’s currency — typically physical banknotes or coins — without legal sanction and with the intent to deceive or defraud. Source
- In counterfeiting, the “money” (notes/coins) produced has no legitimate backing, no legal status, and is not issued under license; it’s accepted only until it’s detected and rejected — because it’s fake. Source
- The act of counterfeiting is a crime (forgery/fraud) because it misrepresents the legitimacy and value of currency, undermines trust in money, and often aims to benefit the counterfeiter illicitly. Source
Hence — the core difference: with bank-money, you have legal sanction, regulation, and oversight; with counterfeit money, you have illicit imitation and fraud.
🎬 How this connects to the video (on Werner’s work)
The video summarizes the arguments in the work of Richard Werner: that banks create money when they lend, not by re-lending existing deposits. That is exactly the mechanism described by the Bank of England in its 2014 report. Video Source
The video — and Werner’s empirical demonstration — helps make this abstract accounting process less theoretical and more concrete. But importantly: their demonstration, and the official banking/central-bank explanation, shows this is not equivalent to illegal “printing” or “fake money”. It’s a legitimate, rule-based expansion of the money supply via regulated banks.
💡 Summary: Why the legality matters
Because banks are licensed by a regulator, and their accounting entries are accepted as valid money, what they do when creating new deposits via lending is not considered a crime. The legitimacy comes from state and regulatory sanction. Counterfeiting, by contrast, is illegal — because it lacks any legal sanction or regulated status.
In short: bank-money creation may seem “magical,” but under law and regulation, it is fully legitimate. Counterfeiting remains strictly illicit.
The video shows exactly what Werner proved empirically: when a bank issues a loan, it does not transfer existing money from savers. Instead, it creates a brand-new deposit by keystroke through double-entry accounting.
Legally, this is allowed because a bank deposit is defined in law as a liability of the bank that functions as money. The “trick” is that once the state grants a banking license, that institution is legally permitted to create IOUs that society must accept as spendable money.
This is why the process feels indistinguishable from counterfeiting to many people — except that it is state-licensed counterfeiting by balance sheet, not an illegal press in a basement.
This is where the moral contradiction highlighted in the video becomes clear: if an individual created money by typing numbers into a fake account, it would be fraud.
When a licensed bank does the same thing, it becomes “credit creation.” The distinction is not mechanical — it is purely legal and political. Werner’s experiment, and the Bank of England’s later confirmation, exposed that the public story of “banks lending savings” was false.
The system works because of legal authority, not because the money already existed.
That is why critics argue we don’t live under a sound money system — we live under a licensed money-creation monopoly where the profits are private and the risks are socialized.
If you want to have control your own finances, then you may wish to explore avoiding using the traditional banking system, or at least explore using it less and less from now on.