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Graeber believes that the Bank of England paper “Money Creation in the Modern Economy” refutes standard explanations of how fractional-reserve banking (FRB) works in a fiat money economy. These standard explanations are myths and this has meaningful consequences. Graeber seems to follow Steve Keen who drew similar conclusions here. Both, Keen and Graeber equate standard explanations of FRB with what they call the “money multiplier theory”. The Bank of England paper explains why the “money multiplier theory” does not offer an accurate description of how the Bank of England directs the money creation process today. What the Bank, Graeber and Keen understand the “money multiplier theory” to be, I come to in a minute. The Bank of England does not state that this refutes FRB explanations in general, as Graeber implies in the quote above. In fact, the Bank of England paper is full of fractional-reserve banking processes, and there is an obvious reason: this is still a fractional-reserve banking system.
