Money and Banking are key factors to any modern economy. Since the start of the global financial crisis of 2007/2008 their role and importance have gained an increasing interest. Our aim in this article series is to shed some on the "Money Creation Process".

In a EU-survey carried out in 2010, nearly 70 % of people believed that they were legal owners of the money in their current bank account. In fact, as we will describe through our series, people do not own this money; rather, the bank owes it to them. In other words our positive, or credit balance, at our bank is a flexi-loan (short term loan) between Us (we are the money lender) and the Bank (as the borrower of our money) which therefore implies that we as lender have a counterparty risk (risk that our bank can fall into default/bankruptcy at any time).

Furthermore we have found in economic textbooks and among many banking specialists an inaccurate and outdated description of the banking mechanics as they are working today. In our view it is key to understand those money processes and mechanics in order to create a more reliable, transparent and independent money creation process which leads to a higher stability of our financial system and in a broader sense creates a greater benefit and sustainability to our more and more interconnected (generating a higher systemic risk) and globalized society.

We don't believe that the current system is the result of conspiracy by bankers, economists and central bankers as it is sometimes suggested by those who seek reforms. Rather we think that the current situation is simply the result of an evolutive process which through the "current global government crisis" shows it limitations and creates a danger for the short term and more clearly lead to the inheritance of incurred risks in favour of next generations.

Our aim in this series is to increase and share with our readers the understanding of the money creation process as it is working today. We will try to use a simple and non-technical explanation approach. Our philosophy is to explain things in a simple and reframed non technical wording in order to make it understandable to a larger audience. After analysing and reading many "scientific" articles on this field, which are mostly targeting a very small community of experts and insiders, we think that only a few authors really deserve our attention on this truly fundamental matter.

The problem today lies in the fact that the money creation process represents the "genesis" of all other economic activities carried out in our society and therefore it is key that a large audience of non-monetary professionals understands the advantages and disadvantages of the current system before starting to think, discuss and contribute to a solution to the current problems arising from this system. Until today too few "called" experts have been thinking in their own corner, taking important decisions which have a big impact on the overall society but not necessarily on them on a personal basis (This is one of the key management problems in our society; taking of a substantial strategical decision <---> real personal impact for the decision takers on their decisions). We don't blame the past for this, but clearly think that the measures taken by a few so called "experts" haven't lead to a more stable environment nor created a more trustworthy and ethical acting by those responsible for corporate governance.

We think that the problem today lies in the fact, that only a few people have a clear and correct understanding of the global monetary and banking systems, and without any progress of this understanding and a wider diffusion of this knowledge it will be difficult to find a solution that will be safe and perform to the greatest benefit of our economy, society and future democratic processes.

To better understand a few more basic principles about money we refer to our Finance Basics Section in the Knowledge Center. There you will find a few key definitions about the purpose of money, the current crisis and the relation between micro- and macroeconomics among other key principles.

Without a proper understanding of money and the money creation process every subsequent economic activities can of course be understood but will always remain on a very unstable ground as it means that we take money for granted. But as seen in the current crisis and already in many other crisis before it is this and only the trust in this basis that gives economical and political stability to a society.

So before we finalize this first part of our Money Creation Process Series we will leave a few open questions to you, which clearly need to be addressed in the near future by all of us. As already mentioned the financial crisis of 2008/2009 (and of course today) and the failure of Lehman Brothers and other financial institutions worldwide has raised many questions about the money creation process in our actual economies:

Why did it happen?

How can we prevent it happening again?

Where did all the money come from (in reference to the credit bubble)?

Where did all the money go (in reference to the credit crunch)?

How did the government (via the ECB) suddenly create billions of new money through 'quantitative easing'?

Are there not cheaper and more efficient ways to manage this financial crisis than to burden taxpayers?

Who controls the money supply process in our economy and what are the underlying criteria which lead to define the correct amount of money an economy requires to be in a stable position?

Albert Einstein once noted that the most powerful force in the universe was the principle of compounding. In investing, this manifests itself through something called compound interest.

Are they alternative ways to generate a less inflationary monetary system in the long run?

Is the only possible monetary system a debt based system?

Is the real economy still connected to the money creation process or are purely financial intangible asset factors such as compound interest and high banking write-offs (e.g. Greek debt) pressures part of the actual money creation process?

As one of the most renowned professor and expert said about the current monetary system:

"When we wake up to that fact that our entire economic world view needs to be reordered just as physics was subject to reordering when man's world view changed with the realization that the earth is not stationary nor is it the center of the universe..."