<p>The initial statements about fractional reserve banking are not a question. The simplified example you give does not reflect the complexity of bank lending. The article "Money Creation in the Modern Economy," by Michael McLeay, Amar Radia and Ryland Thomas of the Bank of England <a href="http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf" rel="nofollow noreferrer">link to paper</a> is one place to start to get a more realistic discussion of money creation.</p>

<blockquote>
  <p>In practice, in the world and the United States, how many spendable
  dollars are created for each actual dollar in circulation, M0 to M1?</p>
</blockquote>

<p>For the United States, these data are available at FRED, a service run by the St. Louis Fed. <a href="https://fred.stlouisfed.org/" rel="nofollow noreferrer">link to FRED</a></p>

<p>The relationship changes over time; the policy of quantitative easing greatly affected money supply numbers, and the relationship between them.</p>

<p>If you are interested in multiple countries, you will probably need to track down data from central banks or statistical agencies, or you may be able to find an aggregate source. I am unaware of any free data suppliers that cover money supply data.</p>

CC BY-SA 3.0
2017-04-25T23:47:34.277Z
It took several months to get a real answer to this question, but I am so glad you answered it
TheEnvironmentalist
CC BY-SA 3.0
2017-04-22T23:22:53.617Z
2017-04-22T23:22:53.617Z
Brian Romanchuk
<p>The fractional banking system, in a nutshell, allows banks to invest the money deposited in them, and then for whoever ends up with that invested money to deposit the money back into the bank, which can then reinvest it and so on. For example, let's say Mike puts \$1000 into a bank. The bank might invest \$800 of those dollars into a factory, which then pays the \$800 to its workers that themselves deposit their \$800 into the bank. So while Mike's bank account balance still reads \$1000, the workers' bank accounts include \$800 of those same dollars that have been paid out on loan from the bank, meaning the bank has effectively turned Mike's \$1000 into \$1800, and can loan out that same \$800 to triple dip, quadruple dip, and so on ad infinitum.</p>

<p>In practice, in the world and the United States, how many spendable dollars are created for each actual dollar in circulation, M0 to M1?</p>

CC BY-SA 3.0
2016-11-21T23:48:48.833Z
Most large financial transactions do not involve dollar bills. Most money is created when commercial banks lend money to their customers rather than being printed by the Federal Reserve.  So what do you regard as an "actual dollar" and what as a "spendable dollar".
Henry
CC BY-SA 3.0
2016-11-21T23:51:25.870Z
@Henry M0 vs M1, no credit. I'm just looking to quantify the multiplier effect
TheEnvironmentalist
CC BY-SA 3.0
2016-11-21T23:58:52.017Z
The St Louis Fed publishes downloadable data on a multiplier (the ratio of M1 to the Monetary Base) at https://fred.stlouisfed.org/series/MULT - it is currently less than 1. The Monetary Base is the sum of currency (including coin) in circulation outside Federal Reserve Banks and the U.S. Treasury, plus deposits held by depository institutions at Federal Reserve Banks. You can select more data from https://fred.stlouisfed.org/categories/24
Henry
CC BY-SA 3.0
2016-11-22T00:02:29.440Z
@Henry How does that make any sense at all?
TheEnvironmentalist
CC BY-SA 3.0
2016-11-22T00:13:42.730Z
The banking system collapsed in 2008 when commercial banks stopped making unsecured loans to each other (which is why LIBOR became fictional, since it measured the interest rates of loans that no longer existed). Instead they deposited vast voluntary reserves at the Fed and other central banks around the world, which then had to resort to unconventional methods such as quantitative easing to keep money in the rest of the economy.  "Fractional reserve banking" was not a good description of how banking operated before 2008, but it became a nonsense after it.
Henry
CC BY-SA 3.0
2016-11-22T09:21:16.790Z
@Henry If a question is good enough to answer the answer is good enough to post as an answer. You have a regular habit of answering questions in comments where they cannot be voted upon and accepted.
Giskard
CC BY-SA 3.0
2016-11-22T10:13:32.277Z
@denesp: My comment was not an answer to the question; it was disagreeing with the presumptions of the question.  If you feel my comments can be put together to make an answer, feel free to do so
Henry
CC BY-SA 3.0
2016-11-22T10:32:37.567Z
@Henry To my knowledge only site moderators can do that. And how is your second comment not an answer?
Giskard
CC BY-SA 3.0
2016-11-22T15:59:09.347Z
`the multiplier effect` is merely some illusion theory.  Bank just make use of "stagnant deposit" for so call "wealth creation", it cannot multiply it. It just put those `idle` money notes inside deposit back to circulation, by the mean of loan and other activities.  It can ended up creating massive bubbles that do the opposite, i.e. speculation, creation of crazy  financial products.
mootmoot
<currency><finance><banking><money-supply><financial-economics>
Given fractional banking and the multiplier effect, for every dollar in circulation, how many dollars in spendable money exist?
TheEnvironmentalist
# Given fractional banking and the multiplier effect, for every dollar in circulation, how many dollars in spendable money exist?

(Asked by: username_0 on 2016-11-21)

The fractional banking system, in a nutshell, allows banks to invest the money deposited in them, and then for whoever ends up with that invested money to deposit the money back into the bank, which can then reinvest it and so on. For example, let's say Mike puts \$1000 into a bank. The bank might invest \$800 of those dollars into a factory, which then pays the \$800 to its workers that themselves deposit their \$800 into the bank. So while Mike's bank account balance still reads \$1000, the workers' bank accounts include \$800 of those same dollars that have been paid out on loan from the bank, meaning the bank has effectively turned Mike's \$1000 into \$1800, and can loan out that same \$800 to triple dip, quadruple dip, and so on ad infinitum.

In practice, in the world and the United States, how many spendable dollars are created for each actual dollar in circulation, M0 to M1?

**Tags:** currency, finance, banking, money-supply, financial-economics

> **Comments:**
> **username_1**: Most large financial transactions do not involve dollar bills. Most money is created when commercial banks lend money to their customers rather than being printed by the Federal Reserve.  So what do you regard as an "actual dollar" and what as a "spendable dollar".  
> **username_0**: @username_1 M0 vs M1, no credit. I'm just looking to quantify the multiplier effect  
> **username_1**: The St Louis Fed publishes downloadable data on a multiplier (the ratio of M1 to the Monetary Base) at https://fred.stlouisfed.org/series/MULT - it is currently less than 1. The Monetary Base is the sum of currency (including coin) in circulation outside Federal Reserve Banks and the U.S. Treasury, plus deposits held by depository institutions at Federal Reserve Banks. You can select more data from https://fred.stlouisfed.org/categories/24  
> **username_0**: @username_1 How does that make any sense at all?  
> **username_1**: The banking system collapsed in 2008 when commercial banks stopped making unsecured loans to each other (which is why LIBOR became fictional, since it measured the interest rates of loans that no longer existed). Instead they deposited vast voluntary reserves at the Fed and other central banks around the world, which then had to resort to unconventional methods such as quantitative easing to keep money in the rest of the economy.  "Fractional reserve banking" was not a good description of how banking operated before 2008, but it became a nonsense after it.  
> **username_2**: @username_1 If a question is good enough to answer the answer is good enough to post as an answer. You have a regular habit of answering questions in comments where they cannot be voted upon and accepted.  
> **username_1**: @denesp: My comment was not an answer to the question; it was disagreeing with the presumptions of the question.  If you feel my comments can be put together to make an answer, feel free to do so  
> **username_2**: @username_1 To my knowledge only site moderators can do that. And how is your second comment not an answer?  
> **username_3**: `the multiplier effect` is merely some illusion theory.  Bank just make use of "stagnant deposit" for so call "wealth creation", it cannot multiply it. It just put those `idle` money notes inside deposit back to circulation, by the mean of loan and other activities.  It can ended up creating massive bubbles that do the opposite, i.e. speculation, creation of crazy  financial products.  

---

## 1 answers

### Answer by username_4 on 2017-04-22. Score: 3

The initial statements about fractional reserve banking are not a question. The simplified example you give does not reflect the complexity of bank lending. The article "Money Creation in the Modern Economy," by Michael McLeay, Amar Radia and Ryland Thomas of the Bank of England [link to paper](http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf) is one place to start to get a more realistic discussion of money creation.

> In practice, in the world and the United States, how many spendable
> dollars are created for each actual dollar in circulation, M0 to M1?

For the United States, these data are available at FRED, a service run by the St. Louis Fed. [link to FRED](https://fred.stlouisfed.org/)

The relationship changes over time; the policy of quantitative easing greatly affected money supply numbers, and the relationship between them.

If you are interested in multiple countries, you will probably need to track down data from central banks or statistical agencies, or you may be able to find an aggregate source. I am unaware of any free data suppliers that cover money supply data.

> **Comments:**
> **username_0**: It took several months to get a real answer to this question, but I am so glad you answered it  

---

