Frequently asked questions

Who creates our money now?

Private banks create 98% of NZ’s money electronically, and the Reserve Bank of New Zealand (RBNZ) creates the notes and coins (2%).

Why does it matter who creates our money?

The quantity of money in the economy, where it comes from and where it is spent has a huge impact on people’s lives. For example, when banks (by issuing too many mortgages) create too much money for the housing sector, house prices skyrocket.

Of course, the more money banks lend, the more profit they make—and the less money the government can spend in the economy for public services and infrastructure. Too much money, whether it comes from the government or the banking system, can be inflationary. Expanding the money supply through bank credit, even though this is good for banks, is often harmful to society as a whole.

I am shocked to hear banks create money out of thin air. It sounds like a conspiracy theory. Is it true?

Yes. Contrary to the common belief that banks only lend out their depositors’ money, they, in fact, create new money when they make loans. See the Reserve Bank Bulletin (31 January 2023): Money creation in New Zealand (PDF), which explains that “The vast majority of money in circulation is created by commercial banks, through the process of bank lending.”

In other words, lending creates new deposits, not the other way around. It sounds odd, but that’s how it works.


Are you saying banks and bankers are evil?

No.  In fact, banks are necessary. Banks are acting legally, in their best interests, according to the rules of our current system. It is the rules that need fixing. You will see banks are an important part of the Positive Money solution that proposes changes on three interconnected fronts: banking, public finance and technology.

Can the problem be solved? What is the solution?

Yes. There are a number of well-thought-out solutions. This explainer highlights three of the options that Positive Money believes can lead to a better, fairer financial system: (1) Much better bank regulation, (2) having the government issue all of our money instead of just 2% currently, and (3) a combination of these two solutions.

Are you saying the government should take over banking in NZ?

No, definitely not. Banks are an essential part of the economy, and responsible private banks are needed.

But we believe that the Reserve Bank should exercise tougher control over banks’ money-creation and credit-issuing powers and that a much higher share of the money needed should be directly issued by the government/Reserve Bank.

Will banks still make a profit?

Yes, although less.

With Positive Money’s proposals, will small businesses be able to get loans?

Yes. In fact, businesses in the productive economy will have much better access to funding. The present system has failed small businesses. The ratio of new money going to the productive sector will increase compared to today’s situation, where mortgage lending dominates.

Will Positive Money’s proposals crash house prices?

No. Prices will stabilise and grow much more slowly over time. Kids will be able to afford houses again as wages catch up, and with less of the credit-driven, boom-bust property cycles, builders and property developers will be able to plan and manage their businesses better.

Won’t removing or reducing the banking sector’s ability to create money reduce its capacity to make loans?

Not necessarily. A Positive Money system will not reduce the banking sector’s ability to make productive loans but it will limit their ability to lend too much where it is not needed.

Positive Money’s proposals will reduce banks’ ability to create excess credit, which drives up house prices. However, the capacity to make good loans to the productive economy will increase.

Under the present system, the amount of money banks have created to pay for the economy’s goods and services has more than doubled as a share of the economy over the past two decades, i.e., banks created twice as much money as was needed for the same amount of goods and services—that causes inflation, and it appeared in house and land prices because the bank-created money entered the economy through mortgage credit.

How can I help the cause?

We have a whole list of things you can do to help. The best way to start is to educate yourself about how the current system works and encourage your family and friends to do the same – when monetary reform legislation or petitions are put forward, it’s good to be able to make an informed choice about supporting them. You may also make a donation here

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