Finance, Forex and Investments

The reason that commercial banks have the ability to create money is because of...?

The reason that commercial banks have the ability to create money is because of A. the margin requirement. B. the private ownership of commercial banks. C. the Federal Reserve System. D. the fractional reserve system. E. the fact that commercial banks charge interest on loans.

Public Comments

1. None, Because yes they are the Federal Reserve System, BUT they do not have the ability to create money JUST because of the FDR. They have the "ability" to make money because congress had granted them the power to make money.
2. The answer is D. In any fractional reserve system (including ones on a gold standard, like in the U.S. in the first part of the 20th century), money is created by the issuance of new bank loans.
3. E.