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Question 1: Where do banks get most of the money to make loans?

Answer: (d) — Banks create new money out of nothing when they make loans, through a simple accounting entry1. “Rather than banks receiving deposits when households save and then lending them out, bank lending creates the deposits”2.


  1. The Future of Money – Stewardship, Reserve Bank of New Zealand (2021), page 47. “The money that New Zealanders use most often in their daily lives is commercial bank money. A commercial bank creates money when it makes a loan to a customer and credits that customers’ bank account with a deposit equal to the size of the loan.”
  2. Bank of England Quarterly Bulletin 2014 Q1 Money Creation in the Modern Economy’ — The Bank of England was the first central bank to describe openly how money is created. Also backed up by the German central bank, Deutsche Bundesbank, in ‘The role of banks, non-banks and the central bank in the money creation process’ (April 2017).

Question 2: Who creates the vast majority of the money in New Zealand?

Answer:  (c) — Private banks create almost all the money in New Zealand.  The Reserve Bank produces the notes and coins, which amounts to approximately 2% of the money in circulation and private banks create the rest.

Question 3: New Zealand uses both cash (notes, coins) and electronic money (eftpos, internet banking, credit cards). What approximate mix of cash and electronic money is used in New Zealand?

Answer: (a) — Only 2% of the money used in New Zealand is notes and coins. 98% of the money is electronic, made by private banks.

Question 4. Would you agree with a financial system proposal whereby private businesses create and allocate the majority of the New Zealand’s money supply according to what made them the most profit?

Answer:  If you answered yes, you are in luck. But if you answered no, then you may be unhappy to learn that actually, this is the system we currently have. Banks make decisions on how much money to create and whom to lend it to based on what makes the most profit for the bank.  Unfortunately, what is best for banks is not always best for the community. For example, lending so that we can buy existing houses off each other for ever-higher prices is unproductive, locks people out of the property market, and creates massive inequality and other distortions in the economy. Most people prefer a system where the public interest is also considered, not just the profits of banks. 

Question 5.    When you deposit money in a bank, who owns it?

Answer: (b) — The bank. When you give your money to a bank, even though it is called a ‘deposit’, legally this money is simply a loan to the bank. If the bank fails, you are an unsecured creditor and only get back whatever money the liquidators determine can be paid1, plus any portion that has been protected by a government deposit guarantee scheme.


  1. “With liquidation, depositors may not get access to their money until

liquidators have settled the failed bank’s accounts. This can take months or years. Even then, depositors will likely receive only a proportion of what they are owed”. OBR made Simple, Reserve Bank of New Zealand, page 2.

Question 6.    Money is destroyed when people repay their loans. True or false?

Answer: (a) — True. “Just as taking out a new loan creates money, the repayment of bank loans destroys money.”1 This matters because during hard times, banks reduce their lending and worried borrowers repay debt at the same time.  Both of these actions shrink the money supply, exacerbating the bust portion of the economic cycle.


  1.   ‘Money Creation in the Modern Economy’, Bank of England Quarterly Bulletin 2014 Q1, page 3

About Positive Money

Positive Money NZ is an independent, non-profit group advocating for monetary reform in New Zealand. Our patron is Bryan Gould, and we are part of a global movement of organisations, the International Movement for Monetary Reform, campaigning to change the way money is created so that money serves society.

For further information, contact Don Richards, National Spokesperson for Positive Money New Zealand.

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