By James Clayton
July 7, 2025
Donald Trump has claimed that American banks are not allowed to do business in Canada, which isn't true, but the US banks would love to have a bigger piece of the financial pie in Canada, since commercial banks are some of the most profitable businesses in Canada.
And banks have an obvious advantage: it's easier to be profitable when you can make money by making money.
As Mark Carney stated in his book Value(s), "In the modern financial system, the private sector creates most of the money in circulation. The principal way banks create money is by making loans. When the bank decides a borrower is creditworthy (that they are likely to pay the loan back), it credits their deposit account for the amount of the loan and new money enters circulation."
The Bank of Canada, the Bank of England, the Federal Reserve, the Swiss National Bank, the Deutsche Bundesbank, the European Central Bank, and the International Monetary Fund have also pointed out that banks create money when they make loans.
Banks create state-sanctioned money with the click of a keyboard by allocating credit. Legal tender banknotes and coins are merely tangible tokens of credit.
There is a systemic shortage and artificial scarcity of state-sanctioned money because banks lend it into existence on the basis of interest-bearing debt. They create the principal amount of every so-called loan, but not the interest. Total aggregate debt, including principal and interest, is always more than the total amount of money in existence. And compound interest causes debt to grow exponentially.
Banks also misallocate credit by creating loans for unproductive and downright destructive purposes, which inflates the amount of money in circulation. Monetary inflation leads to price inflation, which erodes the value of savings and reduces the domestic purchasing power of the currency.
War is an obvious example of senseless destruction-but banks profit from the destruction and eventual reconstruction by collecting interest on loans that they create by allocating some of our collective credit for wars that most people probably oppose.
Banks essentially control the creation of so-called loans and decide who gets credit and who doesn't. They can also expand and contract the allocation of credit, causing cycles of booms and busts.
In a conveniently collusive arrangement, governments allow banks to issue money so governments can receive credit to run deficits and spend more than they collect in taxes. It's a win-win for banks and governments-at our expense. For them, money is power, and the monetary system is an instrument of control.
Unsurprisingly, the banks are raking in billions of dollars in interest every year from so-called loans that they create by making digital accounting entries (so-called deposits). The US banks can't be blamed for wanting to do more business in Canada-and perhaps this is another reason why Trump has repeatedly suggested that Canada should become the 51st state (and the US banks might also be interested in accessing and liberalizing China's financial markets).
It doesn't really matter that some banks are "Canadian" and some are "American." They are all part of the problem: a monetary system that is designed to extract value and wealth by keeping us in a collective state of perpetual debt servitude. And it certainly appears to be a global problem: every country (except perhaps Macau) has a national debt. In Canada, the federal government is in debt, the provincial governments are in debt, and the average Canadian household has a debt-to-income ratio of more than 170%.
But money does not need to be issued on the basis of interest-bearing debt, and credit does not need to be misallocated for unproductive and destructive purposes.
Money's primary function is to facilitate exchange. Mutual credit clearing can serve that purpose and utilize the positive aspects of a credit system. It is essentially a bookkeeping system that keeps an ongoing record of members' transactions (sales and purchases) and account balances (credits and debits). Membership within a network is entirely voluntary, and every member is both a producer and a consumer, a seller and a buyer. Members can receive short-term interest-free credit, which can reduce their expenses, and allows them to temporarily obtain more than they have provided if they are ready, willing and able to deliver an equal value of their own goods and services within a specified period of time. Goods and services simply pay for other goods and services. The allocation of credit for productive purposes preserves the value of the accounting unit within the network and prevents inflation. Longer-term financing can be provided from actual savings and saved credits, using equity financing or debt financing.
Precious metals and distributed ledger technology can still potentially play a role in a credit system. As Thomas Greco has suggested, a market basket of commodities (including gold and silver) can be used as a benchmark standard for defining an accounting unit to provide a more stable measure of value. He has mentioned that blockchain technology may have a useful role in a credit clearing network or private credit currency as a way to create exchangeable "token" vouchers that represent a claim upon goods and services that the issuer has promised to deliver.
Credit has been severely misused and abused by governments and banks, but the problem isn't credit in itself. And mutual credit clearing might not change the entire monetary system, but it does provide an opportunity for the allocation of interest-free credit for productive purposes to facilitate the exchange of goods and services, which is a step in the right direction.