Endogenous money

Endogenous money refers to the idea that banks can create money out of thin air by making loans.

Let's imagine you have four marbles, and I ask to borrow two. If I give you a promise to pay back those two marbles, you might lend them to me. This means you have loaned me two marbles that I did not have before.

Now, let's think about a bank. When you deposit money into a bank, the bank now has more money to lend out. If someone comes in and asks for a loan, the bank can use the money from the deposit to loan out.

But, banks don't have to wait for deposits to make loans. They can create new money by simply recording the loan on their books. So, if someone asks for a loan, the bank can agree to lend them the money and then create that money out of thin air.

This is why some people say that banks create money "endogenously" meaning it comes from within the banking system, rather than from outside deposits.

Of course, banks do have limits on how much they can lend out, and they do need to make sure they have enough money to cover withdrawals. But, the idea of endogenous money means that banks have an important role in creating new money and expanding the economy.