How Central Banks Create Money From Thin Air

Monetary Policy Explained with Fexingo: Central Banks, Money Supply, and Interest Rates · Sep 28, 2026 · 11m · transcript

In this episode, we strip away the mystery of modern monetary policy by examining the mechanics of how central banks actually create money. We focus on the Federal Reserve's balance sheet expansion during the pandemic era and contrast it with the traditional view of the money multiplier. Lucas breaks down the specific process of reserve creation through open market operations, while Luna challenges the assumption that more reserves always mean more inflation. We explore why the demand for loans, not just the supply of reserves, now drives the money supply, using concrete examples from…