By Denis Hay
Description
Who controls our money? Discover how private banks create debt-based money and what Australia must do to reclaim monetary sovereignty. Learn the hidden truth.
Picture This: A Loan That Creates Money
It’s payday. Your wage hits your account. You breathe easier, for a moment. Then rent is due, groceries are up again, and your credit card balance hasn’t budged. But here’s something you may not know: the money in your account didn’t exist before someone, somewhere, went into debt.
Most Australians believe banks lend money that’s already in their vaults. Banks create money out of nothing when you take out a loan. They type numbers into your account and charge you interest for the privilege. It sounds unbelievable – until you look at how the modern banking system works.
This article explains how private banks create money, why this system is broken, and how Australia can reclaim its power to generate money for the public good, not private profit.
The Problem: How Banks Create Money – and Debt
Your Loan Is Their Profit
When you sign on the dotted line for a mortgage or personal loan, you might think you’re borrowing someone else’s savings. You’re not. The bank creates new digital money and deposits it into your account. This is known as credit creation.
Professor Richard Werner, who coined the term “quantitative easing,” has explained that banks don’t lend money – they create it. That money is now in the system, but it must be paid back with interest, which doesn’t yet exist in the economy.
“Each time a bank makes a loan, it creates new money.” – Bank of England
Where Does the Interest Come From?
Here’s the hidden catch: banks only create the loan amount (the principal) – not the interest you must repay. For example:
• You borrow $100,000.
• You repay $130,000 over time.
• But only $100,000 was created.
So, where does the extra $30,000 (the interest) come from?
It must come from new money created through someone else’s loan. More people, businesses, and governments must go into debt to keep the system running. This creates a constant need for:
• More borrowing
• More spending
• More economic growth
If borrowing slows down, there will not be enough money in circulation to pay off all loans plus interest. This will lead to defaults, recession, and economic stress.
In short, it’s a treadmill economy. We all must run faster to stay in place.
In-Transit Money: A Hidden Scam
Let’s rewind to the cheque-clearing era. A cheque deposited into Bank A could take days to clear from Bank B. During that lag, both banks could show the money in their books, lending it out and earning interest. It was being lent in two places simultaneously, and the borrower paid for the delay.
Today, even digital transactions can carry a one-day delay on balance sheets. This is deferred posting, and banks still profit from this phantom float.
A veteran of Australia’s banking sector, calls this “intransitu money“ – a clever trick where banks create extra interest by manipulating posting times. Throughout billions of transactions, this adds up to a tidy hidden profit.
The Cost of Debt-Based Money
When all money is created through debt, it forces a treadmill economy. Governments, businesses, and households must always borrow more to keep the system running. If they don’t, the system contracts.
This leads to:
• Constant pressure to grow the economy.
• Asset bubbles, especially in housing.
• Widening inequality.
• Economic fragility.
And the kicker? Private banks decide who gets money, not the public. Their choices shape our economy more than Parliament ever will.
The Real-World Consequences
Debt Is a System – Not a Flaw
Picture a young couple in Brisbane. Both work full-time, yet they’re barely scraping together a deposit. Banks are happy to lend them $800,000 for a modest home, but that money didn’t exist until they agreed to spend the next 30 years paying it back.
Millions of Australians share their stories, stuck in a cycle of mortgage stress, student debt, and stagnant wages, all while bank profits soar.
Inflation and the Cryptocurrency Illusion
Now add digital currencies into the mix. Unlike public money, cryptocurrencies are backed by nothing but speculation. The cash used doesn’t disappear when people buy it – it stays in circulation. Meanwhile, the new asset drives up prices in yet another bubble.
Even worse, some forms of digital currency are being sold as stable alternatives without real asset backing, increasing risk, and fuelling inflation.
Debt-Free Public Money
What Is Debt-Free Money?
Debt-free money is currency created by the government – not banks – without the need to pay it back with interest. In Australia, this means the federal government, which is the sovereign issuer of the Australian dollar, can create money to fund public goods.
This is not a fringe idea. Australia used to do this through public works and services. Government salaries were paid using money created without bank debt. Projects like the Snowy Mountains Scheme, public schools, hospitals, and rail were built this way.
Public Banking and Monetary Sovereignty
A public bank, owned and run by the government, could lend for social benefit, not profit. It could support:
• Affordable housing projects
• Infrastructure
• Renewable energy
• Local business loans
Other nations have done this successfully
• The Bank of North Dakota has outperformed private banks for over a century.
• China’s state-owned banks fund long-term planning, not just quarterly profits.
Australia has the monetary sovereignty to do this – but our politicians act like household accountants chasing budget surpluses.
“A budget surplus may look good politically, but it withdraws money from the economy—just when people need it most.”
Digital Currency: Risk or Opportunity?
The Cryptocurrency Bubble
Digital currencies like Bitcoin and Ethereum have no intrinsic value. Their prices are driven by hype and speculation. Worse, when people convert their dollars into crypto, they remain in circulation, adding to inflation.
Digital assets are not inherently bad, but they become tools for wealth extraction and market manipulation without public oversight and proper backing.
China’s Digital Yuan – A Different Model
China is pioneering a digital yuan that is:
• State-controlled.
• Asset-backed, including gold reserves.
• Designed for public use, not profit.
This alternative model offers a public digital currency that replaces debt-driven and speculative systems.
Ref: The Digital Yuan: Purpose, Progress and Politics
Could Australia do the same? Yes – if it chooses people over profit.
Reclaiming Our Future with Debt-Free Money
Australia’s current banking system puts private profits before public needs. It creates money through debt, enriches banks through hidden mechanisms, and leaves ordinary citizens stressed, overworked, and overcharged.
But there’s a way forward:
• Create debt-free money for public benefit.
• Establish public banks to fund real needs.
• Use monetary sovereignty to invest in the future.
• Reject the illusion of unbacked digital currencies.
Our economy should work for us – not the other way around.
Q&A Section
Q1: Isn’t printing money inflationary?
Only when the economy is at full capacity. When there’s unemployment and underused resources, public money boosts productivity and demand – without causing inflation.
Q2: How would a public bank help?
Public banks lend at lower interest, focus on community needs, and return profits to the public – not shareholders.
Q3: Can digital currency work for the public?
Yes – if it’s publicly managed, asset-backed, and transparent. A digital Australian dollar could serve the people, not speculators.
Have Your Say
Have you or someone you know felt trapped by Australia’s debt-based system? Or struggled with inflation while banks made record profits? Share your experience below.
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A great article Denis.
One to file for future reference.
It’s been explained elsewhere that the Commonwealth Bank, when it operated as a public bank in the manner outlined here, laid the foundation for our economic development and was admired around the world.
As Michael Hudson puts it, economic history is embarrassing for those who now run the show.
Years ago I read Kim Beazley’s excuses for privatising the C Bank. It took him a couple of pages.
If the move was justified he could have explained it in one short paragraph.
Economic history is easily disputed, challenged, rubbery. Always was, perhaps.., but, since the Friedman, Krugman, Hayek, Von Mises times, sense and honesty have been drowned by assertion, dogma, personal drives, posturing, as much as by rigour. Hayek never worked in, or invested in, private enterprise. He ruined his family ruthlessly to pursue an old “flame” who was “unattainable” in his youth, causing ill-feeling and strain. He touted guaranteed tenured positions with assured income to pay for two families. A life of cultured fixations finally gave him material rewards. Seek truth, or truths, elsewhere, especially while awaiting a justifiable revival of Keynesianism.
Steve:
I remember when our (publicly owned and operated) telecommunications system was leading edge and the envy of many other nations. Cheap, accessible, properly maintained. Privatisation has been such a boon, hasn’t it?
It seems Aust govt securities (Bonds) are also created out of thin air, in co-ordination with the Reserve Bank (RB).
https://www.rba.gov.au/mkt-operations/government-bond-purchases.html
When the govt recently ordered AUKUS nuke subs, it created a $368B debt. How will that debt be serviced? Issuance of Govt securities or sale/lease of Commonwealth assets, or another mechanism?
Govt securities (Bonds) are offered on the open market and buyers signal confidence in the corporate govt (Lib-Lab) to both pay interest & return capital.
Commercial bank (cb) bond purchases seem to also be backed by the RB (see link above). That program is separate from the cb ability to create ‘their’ airy-fairy credit (their mainstay) to keep the local housing bubble on life-support.
If a borrower’s signature creates the loan amount, that means the borrower is creating the credit for the bank, not the other way around, does it not?
So, while the RB & cbs may have a legitimate claim to be paid some kind of fee for keeping the economy functional (eg. co-ordinate currency flow etc), I’m not sure they deserve to be ‘repaid’ ANY CREDIT created by a borrower’s signature.
I read that in 1975 Labor signed up to UNIDROIT (International Institute for the Unification of Private Law). ‘UNIDROIT’ and UCC are birds of a feather. https://www.unidroit.org/about-unidroit/overview/
The story was that if Labor (or LNP) could get Aust to declare itself a Republic, the original ‘Commonwealth of Australia Constitution’ could be dropped. My understanding is under the original Constitution, ‘the people’ are heirs to the ‘common-wealth of this country’, not the parasitical UN. You can see why the greedy ones want it gone.
Understand the ‘Strawman’ concept as indulged by govts, BAR, banks (Commercial, Reserve, BIS) & UN etc and it makes more sense. The quote by Colonel Edward Mandell House in ‘Origins of your Slavery to the Banksters’ below, is a good start.
https://cirnow.com.au/origins-of-the-strawman/
An excellent explanation of Modern Banking Theory, NOT to be confused with Modern Monetary Theory that liberates government spending on demand.
My banking reading was decades ago but I remember that one dollar deposited in a bank allowed about 8-10 dollars to be loaned out. So the numbers on the accountant’s page are more valuable that the physical folding notes.
Now all we have to do is restrict foreign banks operating in Australia, get the superannuation funds to invest in public infrastructure and much of our dilapidated public infrastructure in regional centres could be replaced with modern technology.
Not just four lane highways to facilitate commercial B-Triples, and give family car drivers a chance to make it home after a vacation trip, but renovated & reopened railways to get B-Triples off the highways plus jet standard airports.
Then regional medical services could be upgrades from negligible to suburban standard and regional state schools may even get some equitable government funding.
leefe, exactly so.
And our privatisation disasters have been nothing compared to some overseas.
Check out the Thames Water debacle.
Or British Rail.