In a recent conversation with Tucker Carlson, the German economist Richard Werner explained how banks are able to “create money from nothing”. [i] In 2014, Werner had already published two articles on this enigma: “Can banks individually create money out of nothing?” and “How do banks create money, and why can other firms not do the same?” In these articles Werner presents an overview of the well known theories of “money creation” and concisely described an experiment he conducted in cooperation with an established German bank to bring to light another monetary practice that had never before received any attention in mainstream economic/financial publications. [ii] iii] Briefly put, Werner demonstrated that banks can and do create money by making credit available to borrowers without disbursing the loan but, instead, keeping customer deposits in their own balance sheet.
Uniquely exempt from accounting rules
According to Werner, banks get away with keeping customers’ deposits, also known as “money”, in their own balance sheet not because they combine lending and deposit taking activities under one roof, but because the necessary and sufficient condition for being able to create credit and money is that banks are uniquely exempt from the accounting rules that provide that firms that do not have a banking autorisation must hold client deposits/money in segregated escrow (trust or third-party) accounts so that these deposits remain “off-balance” for the firm. In the simplest of terms, the exemption makes that the money you hold in “your” bank account remains on the bank’s own balance sheets.
The crucial accounting change
This Commentary is not the place to elaborate on Werner’s findings and evaluate whether they conclusively answer the question how banks create money from nothing. But in case you’re interested in the technicalities involved in creating money from nothing, read on. If not, just skip this and the following paragraphs and continue reading at Money, money, money. According to Werner, money creation is accomplished “through the one, small but crucial accounting change that does take place on the liability side of the bank’s balance sheet […]; the bank reduces its ‘account payable’ item by the loan amount, acting as if the money had been disbursed to the customer, and at the same time it presents the customer with a statement that identifies this same obligation of the bank to the borrower, but now simply reclassified as a ‘customer deposit’ of the borrower with the bank.” (emphasis added)
Banks are not financial intermediaries
The borrower is given the false impression that funds have been made available to him/her/it while in fact, due to this accounting change, no transfer of money has actually taken place. “There is,” so Werner, “no equal reduction in the balance of another account to defray the borrower. Instead, the bank simply re-classified its liabilities, changing the ‘accounts payable’ obligation arising from the bank loan contract to another liability category called ‘customer deposits’. Werner concludes that “banks are not financial intermediaries, but creators of the money supply, whereby the act of creating money is contingent on banks maintaining customer deposit accounts, because the money is invented in the form of fictitious customer deposits that are actually re-classified ‘accounts payable’ liabilities emanating from loan contracts.”
Money, money, money …
Evidently, money created from something existed long before bankers figured out how to create it from nothing. The Romans created money by stamping metal to make coins. Money comes from the Latin word “moneta”, which not only means “mint” or “minter”, i.e. a “place for coining money”, but also the result of minting: “coined money, money, coinage”. In Old English a “mynetere”, from Latin “monetarius”, was someone who “stamps coins to create money”. In this monetary tradition, money wasn’t created from nothing, but from metals. Had Tucker Carlson asked a “myneter” whether it is possible to create money from nothing, the latter would have laughed in Tucker’s face and shrugged him off as a complete idiot. Yet, here we are, watching Carlson and Werner discussing how banks create “money” from nothing.
The illusion of money
Solving this conundrum is actually quite simple. Banks do not create money from nothing. What banks do is create the illusion of money from nothing. This is the reason why money is sometimes called “an idea backed up by confidence”. Bankers act like con artists. They are “illusionists”, skilled in the art of creating “money” from nothing by giving borrowers the false impression that the deposits placed in bank accounts have come from somewhere, while in fact, due to an accounting trick that remains unseen for the actual client, no transfer of money has taken place. As Werner explained, there is no equal reduction in the balance of another account to defray the borrower. The bank’s clients are left unaware of the fact that their deposits were created from nothing and that their money is added by the bank to the total amount of money that is in circulation and that this is the one and only cause of inflation. They have no idea that by accepting loans from banks they are instrumental in reducing the purchasing power of owners of previously existing “money” and that all future borrowers of new money created from nothing will inevitably reduce their own purchasing power.
What about CASH … ?
Does using cash solve the problem? Not really. Except that the use of cash takes place outside the control of the bank and, in a larger context, outside what’s called the “control grid”, cash is as illusionary as “money” held in bank deposits. Cash is no more than printed paper (banknotes) or coined metal of little or no value. Without its official marks and imprints, cash isn’t worth a dime. It gives the “money illusion” a glow of credibility because you can keep it in your pocket, money box or safe. Yet, all cash is issued by federal, national or reserve banks. To obtain it, the first user must withdraw “money” from his/her/its commercial bank account. Just like “money” held in bank deposits, cash is created from nothing, be it that it takes paper, metal, a printing press and a “mint” to create it.
Creation out of nothing ?
Richard Werner has been critisized for presenting a limited and one-sided explanation of “banking” and for rejecting “other theories” of money creation. In “Richard Werner’s Credit Creation ‘Experiment’: How Do Banks Create Money?“, an article published on the website of the Mises Institute on 14 August 2025, Jonathan Newman writes that Werner’s “favored theory, interpreted charitably, isn’t incorrect but it narrowly focuses on one loan by a fractional reserve bank.” [iv] Well, I leave it to the scholars, pundits and bankers to agree or disagree on how exactly banks manage to create money from nothing. Not because I think that the matter isn’t of importance, which it most certainly is, but because the word that is left unexplored in these discussions is ….. “nothing”.
Creation ex nihilo
Creation out of nothing, in Latin: ex nihilo, is commonly understood as an act that only God is capable of. In fact, creating ex nihilo is what defines God. The crux of the matter is, of course, to be found in the words “ex nihilo”, which makes creation out of nothing an act that takes place at a level of existence where nothing exists except the ability to create. Creation ex nihilo implies creating a creation from its very beginning, de novo. Before a creation’s beginning there was nothing, except of course the potentiality to come into existence as Creator.
Ex nihilo out of nowhere …
I doubt whether the monetary experts who offer explanations as to how bankers create money out of nothing are aware of the fact that the combination of the words create and out of nothing does have profound implications. Of course, we all think we understand what is meant by creating money from nothing. Without giving “nothing” any further thought our attention is primarily fixed on that precious “something” that, in spite of having been created out of nothing, still seems to make the world go round and round. The point is that, strictly speaking, creation from nothing must take place out of the nowhere where there is nothing, the nowhere that “was” before The Beginning. In this nowhere there were no heavens, no earth, no mankind, no Adam, no Eve, no plants, no fish, no beasts, no things, no objects, no …. money.
The Creator of Man
There was, however, a Creator Who, in the course of the human events that took place after The Beginning, made Himself known to Man as “I am” (“IAWEH”). Those of us who dismiss this as superstititon or baloney might consider that without “I am” they wouldn’t be here. Whatever the case may be, the Men who signed the American Declaration of Independence on behalf of their States held that the Creator of Man not only creates all Men “equal”, but also endows everyone of us with the unalienable rights called Life, Liberty and the Pursuit of Happiness. Anyone who thinks, suggests or insists that substituting money created from something for the illusionary money created by bankers “out of nothing” will be helpful in the pursuit of happiness, should seriously check how this promise impacts everyone’s Life and Liberty.
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[i] Richard Werner Exposes the Evils of the Fed & the Link Between Banking, War, and the CIA; https://www.youtube.com/watch?v=StTKHskg5Tg
[ii] Can banks individually create money out of nothing? — The theories and the empirical evidence. Richard A. Werner; International Review of Financial Analysis; http://dx.doi.org/10.1016/j.irfa.2014.07.015; 1057-5219/© 2014 Published by Elsevier Inc.
[iii] How do banks create money, and why can other firms not do the same?An explanation for the coexistence of lending and deposit-taking. Richard A. Werner; International Review of Financial Analysis; http://dx.doi.org/10.1016/j.irfa.2014.10.013; 1057-5219/© 2014 Published by Elsevier Inc.
[iv] Richard Werner’s Credit Creation “Experiment”: How Do Banks Create Money?; Jonathan Newman; Mises wire, 14 August 2025; https://mises.org/mises-wire/richard-werners-credit-creation-experiment-how-do-banks-create-money
