And that money will move across between the accounts at the Bank of England. When that money has moved across, then the banks will consider that that payment has been settled.
When a bank buys securities, such as a corporate or government bond it adds the bond to its assets and increases the company's bank deposits by the corresponding amount.
New commercial bank money enters circulation when people spend the credit that has been granted to them by banks.
I found that talking on the doorstep from August 2009 around to the general election, eight or nine months, I suppose, knocking on doors, is that when we tried to explain how the money system works, there's an almost in-built refusal of people to accept that such a bizarre situation could actually exist.
Ah no, it can't possibly. What do you mean? Banks don't create money out of thin air.
That's ridiculous. They can't do that. They lend out their depositors' money.
Most people have an idea of how money is.
Who knows what the term "hedging" is? Spreading your risk. Managing your risk, insuring against it, precisely. Up until very recently, until the 1960s, the Securities and Exchange Commission would be quite clear that derivatives that weren't based on real products like agricultural products, so pork belly futures or whatever, would in fact be essentially a kind of gambling and you weren't allowed to trade them.
When banks issue loans to the public, they create new commercial bank money.
When a customer repays a loan, commercial bank money is destroyed.
The banks keep the interest as profit.
There're a lot of misconceptions about the way banks work.
There was a poll done by the Cobden Centre where they asked people how they thought banks actually operated.
Around 30% of the public think that when you put your money into the bank it just stays there and it's safe, and you can understand why because every child has a piggy bank where you keep putting money in and when it's a rainy day you smash it and you take that money out and spend it.
The third kind of bank run is the international bank run. According to at least one US Senator, this is what caused the September 2008 meltdown. Look, I was there when the Secretary and the Chairman of the Federal Reserve came those days and talked with members of Congress about what was going on. It was about September 15th.
Their remit includes figuring out how they can prevent future bailouts. When they held their public meetings around the country, at each of those meetings, of the five panellists at that meeting, at least about three of them were representatives of the big banks.
so money can much more easily come in and out of their economy. The idea is that this will encourage investment to come in from richer parts of the world, and that all of their problems will be solved from this investment.