I don't mean printing money. but about how it enters economy. first let us simply assume that Central Bank lends commercial banks some money, 100 billion, Commercial banks have to pay back the money with interest of 10% at the end of the year. Assume there are 1000 billion already in the system. So when the new money worth 100 billion enters economy, it becomes 1100 billion. Now consider Commercial Bank A got the entire 100 billion money. They lend all the money to public at 20% which means at the end year they will get 120 billion. Now public got that 100 billion, spend the entire money and the money went into other hands who deposited in other banks, banks lend that money others again, they were deposited in another bank, and again that bank lent that money, so it continues. no matter who lent to whom, and who deposited in which bank. the net money in the system is 1100 billion only. Is this Right?, 100 billion USD is just changing hands from public to banks and to public again like a cycle net assets minus liabilities has to be 1100 billion at any point of time. now at the end of the year, Commercial Bank A received 120 billion from public. So Bank A had repaid the 110 billion to central bank and made a profit of 10 billion . Now total money in the system is 1100 billion - 110 billion = 990 billion its less than 1000 billion. So did Central Bank create money or took out money already present in the system? the thing which confuses me is how money multiplies? how can 100 become 120 without that additional 20 being created by the govt? if govt doesn't create that additional 20, then it has come from the system which means money is not being created but is simply changing from one hands to another.