Program and Development Research

Program and Development Research

Investigating the creation of money from nothing in Iran's banking system

Document Type : Original Article

Authors
Hosein Samsami 1
Atiyeh Dobaradaran 2
1 Associate Professor, Department of Economics, Faculty of Economics and Political Science, Shahid Beheshti University, Tehran, Iran.
2 M.A. in Economics, Department of Economics, Faculty of Economics and Political Science, Shahid Beheshti University, Tehran, Iran.
10.22034/pbr.2024.205534
Abstract
The growth of liquidity in recent years has increased sharply, with banks playing a significant role in this process through the creation of money via bank credits. This practice has led to imbalances in the banking network due to the location of new deposits. In this study, we intend to examine the process of money creation from nothing within the Iranian banking system. According to this theory, banks can create the entire amount of loans from nothing, based on the profitable opportunities available to them, and then seek to secure their reserves. To gain an insight regarding this process, the study garnered data from 18 banks listed on the Tehran Stock Exchange over the period from 2014 to 2022, using a panel data approach. The study employed two methods to explore the causal relationship between bank loans and deposit volumes. In the first method, two functions were estimated using the GLS estimation technique. The first function confirmed the causality from bank deposits to granted loans by estimating the relationship between deposit supply and loan provision. The second function, aimed at investigating money creation from nothing, established causality from loans to deposits. The second method involved performing a VAR test to determine the optimal number of lags between the two variables. Following this, the Granger causality test was applied, confirming the existence of a two-way relationship between loans and deposits.
Keywords
Creating Money out of Nothing
Bank Facilities
Bank Deposits
Creating Liquidity
Bank Accounting
Data Panel

Subjects

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