"Money creation by private banks is a legacy of history. Banking started around the 15th, 16th century when goldsmiths started storing gold for their clients. To prove ownership customers received certificates which came to be used as a means of payment. Initially the goldsmiths gave out as many certificates as they had gold in stock, but they soon realized it was very unlikely that all customers would demand their gold at the same time. So they issued more certificates than they had gold in their vaults: money creation through private banking was born. For banks today the same applies as for goldsmiths at the time: if all customers demand their deposits at the same time—a so-called "bank run"—the bank will not be able to pay and will fail. And worse, depositors will loose their money."
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Original Language: English
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Sources
Frans Doorman, Our Money, Towards a New Monetary System (2015) p. 23.
https://en.wikiquote.org/wiki/History_of_banking
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History of banking
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