Money production process of banks: An animation study on the fractional reserve system

Role and functions of banks in the financial system are of importance due to their effect on financial policies, monetary policies as well as government policies. It has been long debated whether banks use their existing deposits or create new money when granting loans (credit). Three different theories in different periods were suggested on whether banks use their existing deposits or create new money when granting credits. The oldest of the three is the Credit Creation Theory of Banking. According to Credit Creation Theory of Banking, each bank provides credits through different accounting operations and can create the money of provided credit. Another theory, also focal point of this study, is the Theory of Fractional Reserve Banking. According to the Theory of Fractional Reserve Banking, banks can create money not on their own but as a whole with all other banks within the financial system. When the issue is addressed within this regard, each bank is solely a financial intermediary within the financial system and provides their deposits as credits to those in need. Another theory seeking to answer this question is the Theory of Financial Intermediation. According to the Theory of Financial Intermediation, banks act as financial intermediaries both individually and as a whole within the financial system. This theory suggests that banks possess the same operational capacities with other financial institutions, take deposits and facilitate such deposits as credits to those in need of funds, and that they are not capable of creating money. Starting point of this project is conducting a study on the Theory of Fractional Reserve Banking, which is the 3 main theories that answer the question of "can banks create money?", and demonstrate the functioning, processes and relevant accounting records of this system with a simulation. Along with this simulation, which will be developed on Fractional Reserve Banking, it is aimed to show the public with all the details of the system where banks make unfair profits by using their accounting operations. The actual functioning of banks, which are seen as the most reliable means of holding money for people, and how they are in the gravy through accounting organizations, will be shown along with this simulation, which will be developed Keywords: Fractional Reserve, Simulation Development, Making Money