Today's money is a piece of whatever
it is made of. Paper, linen, cotton, plastic, Abaca fiber, Gorilla's hair, name
it. Government's, Central banks or whoever has monetary authority over a territory
decides how many pieces of that object we call money is printed. They can print
all they want so they can purchase whatever is necessary to accomplish their
plans or agenda but printing too much has grave consequences. For instance,
Germany during the 1920's printed too much money that it's economy experienced
an insane out of control inflation. This caused the prices of goods to rise
in value tremendously and fast that Germans burned their paper money for heat
as it is cheaper than buying coal.
Printing more money is sometimes the result of a phenomenon called the multiplier
effect. For example, a bank receives a total deposit of 100 million.
Banks are required to deposit a percentage of their reserves to the central
bank, for this example let's say the required reserve ratio set by the central
bank is 20%. The bank then deposits $20 million to the central bank for reserves,
and its cash in vault is now $80 million.
The bank can lend out its extra cash by creating a new checkable deposit in
your name. When you deposit money at the bank, they are held liable for that
money you kept at their bank because when you demand for the money (withdrawal)
they would have to provide the amount you requested. But for the whole time
that your money was with the bank, it also counts as their asset, since they
can use that money to lend out to someone else for profit.
The money supply increased by $80 million if you combine the total asset of
the bank (100 million) with your "newly created" asset (80 million).