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Updated 03:14 26/05/19

Icelandic Central Bank to end commercial banks’ ability to print money?

By Peter Walden, News Editor

02 Apr 2015

The Icelandic government is considering taking away the power to print money from its commercial banks and giving it back to their central bank.

Currently central banks around the world have the ability to issue new notes and coins, but leave the creation money to commercial banks via the issuance of debt. This system allows commercial banks to create money with no backing and lend it out with interest. This process is commonly known as fractional reserve lending. Many consider the system to be unfair and warn the system is unsustainable.

Central banks can influence the supply of money by either cutting or raising interest rates.

Iceland was hit hard during the 2008 economic crises with GDP falling 5.1% in 2009 and 3.1% in 2010. Iceland was one of the few countries to let their banks go bankrupt and was the first western European nation in quarter of a century to appeal to the IMF for funding.

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