The Death of the Money Multiplier

Monetary Policy Explained with Fexingo: Central Banks, Money Supply, and Interest Rates · Sep 24, 2026 · 10m · transcript

We used to teach that banks create money by lending, and central banks control the money supply through reserve requirements. But in September 2026, that textbook model is effectively dead. Lucas and Luna explore how modern central banking works when reserves are abundant, not scarce. We look at the Federal Reserve’s new operational framework, where interest rates on reserves replace open market operations as the primary tool. This shift means the money multiplier no longer dictates credit creation. Instead, banks lend based on capital rules and borrower demand, while the Fed sets the price…