Question

explain how the banking system 'creates' money independent from the amount of currency in the economy. In your own words indicate whether this is a major or minor source of money in the economy and whether you think it compares today vs 20 years ago vs how important it might be 20 years in the future. (Is the role of the banking system consistent over time or evolving? If evolving where is it heading, if its not evolving, why has it remained stable over time?)

Answer 1

The banking system creates money independent from the amount of currency in the economy in the form of bank deposits, loans, fees, intercharges etc. Bank operates by taking in deposits from customer and by providing loans to lenders. Commercial banks create money by allowing multiple claims to assets on deposit. Central bank creates broad money in the system through fractional reserve banking. The majority of money in the economy comes from these loans created by banks.
Banking system creates money is the major source of money in the economy. In the economy 97% of the money is created by banks, and 3% is created by the government. Main sources of money supply are the currency and demand deposits, trade practices, banking habit, banking development etc.
While comparing the banking system today vs 20 years ago there is a lot of change happened and 20 years in the future it will grows in terms of technology, departments etc. Modern Banking Systems provides a core banking software solutions for community banks. The role of the banking system is evolving over time. Current Banking System helps in the core bank processing solution, provides flexibility and security, integrates features to the customers like Internet banking, on line, and mobile banking. Banks gradually transformed themselves into universal banks. With the help of technology now banking is anytime anywhere banking like ATMs, Internet banking, mobile banking. The banking system is evolving and it is heading towards the development.