The majority of money in a modern economy is created by commercial banks at the moment they make loans. When a bank approves a mortgage or a business loan, it does not transfer existing deposits from one account to another; it creates a new deposit in the borrower's account, and that deposit is new money.

This is not a fringe theory. It is the mainstream description given by central banks themselves. The Bank of England's 2014 bulletin "Money creation in the modern economy" states it directly: bank lending creates deposits, and bank deposits make up 97 percent of the broad money in circulation. The physical notes and coins issued by the central bank are the remaining sliver.

The textbook story many people learned, in which banks collect savings first and lend them out afterward, describes the sequence backwards. In practice the loan comes first and the deposit is created by it. The familiar phrase "fractional reserve banking" survives from the older description, but the Bank of England bulletin is explicit that reserves do not constrain lending in the way the textbook multiplier suggests; banks lend first and settle reserve positions afterward, with the central bank supplying reserves on demand at its policy rate.

Two consequences follow from this arrangement. First, nearly every unit of money in circulation was born as someone's debt, and it carries an interest obligation from the moment it exists. Second, the decision about where new money enters the economy is made by whoever decides which loans are profitable to write. That decision, repeated millions of times, is the distribution mechanism of the modern monetary system.

Understanding money creation therefore requires asking a second question, one that receives far less attention than the first: once money is created, who receives it, and in what order?

New money does not arrive everywhere at once. It enters the economy at specific points, through specific hands, and it changes prices as it spreads. Whoever stands closest to the point of issuance spends the new money at old prices; whoever stands furthest away meets the higher prices before the new money reaches them.

This observation is older than central banking itself. The Irish-French banker Richard Cantillon described it in his "Essai sur la Nature du Commerce en Général", written in the 1730s: an increase in the money supply raises prices unevenly, in a sequence determined by who receives the new money first. Economists still call this the Cantillon effect.

In the bank-credit system, the sequence is structural, not accidental. The first receivers of new money are the parties banks find most profitable and least risky to lend to: existing asset holders who can pledge collateral, large corporations with established credit, governments issuing bonds, and the financial sector itself. A household with property receives a mortgage; a household without property receives nothing and later pays the property prices that mortgage credit financed.

None of this requires bad intent. Each individual lending decision is commercially rational. The distributional pattern is an emergent property of the architecture: when money is created as credit, creditworthiness is the admission ticket, and creditworthiness correlates with wealth already held.

Seigniorage is the profit that accrues to the issuer of money: the difference between the face value of the money issued and the cost of issuing it. The word descends from the medieval seigneur's fee for minting coins, but the mechanism did not disappear with metal coinage. It changed shape.

For a central bank, seigniorage arises because banknotes and reserves cost almost nothing to create while the assets purchased with them, government bonds chiefly, pay interest. The income on those assets, minus operating costs, is typically remitted to the national treasury. This portion of seigniorage is at least publicly accounted for.

For commercial banks, the analogous gain is quieter. A bank that creates a deposit by lending earns the interest margin on money it did not previously hold. This is not seigniorage in the strict accounting sense, but it is issuance profit in the practical sense: the privilege of creating the deposit is what makes the margin available. The privilege is licensed, concentrated, and inherited by whoever owns the banking system.

The distributional question, then, has a clear answer under the current architecture. The gains from money creation flow to the issuers and the first receivers: banks, treasuries, and collateral-rich borrowers. The costs, in the form of prices that have already risen by the time new money arrives, are carried by the last receivers.

Distance from the issuance point is measurable. It shows up as eroded purchasing power, exclusion from credit, and high fees for moving money at all.

The erosion is documented by the issuing governments' own statistics. The US dollar has lost approximately 87 percent of its purchasing power since 1971, per the US Bureau of Labor Statistics CPI calculator. A wage earner who holds dollars between paycheck and spending absorbs that erosion continuously, while a borrower holding assets financed by cheap credit is compensated by the same process that causes it.

Exclusion is documented as well. The World Bank's Global Findex counts 1.4 billion adults with no bank account at all. These are the people furthest from the issuance point: they cannot borrow newly created money, they hold their savings in the most inflation-exposed form, physical cash, and they pay the highest tolls when money must cross a border. The World Bank's Remittance Prices Worldwide data shows traditional remittance channels extracting 3 to 7 percent of each transfer, a levy that falls precisely on the populations least able to carry it.

Digital currencies reopened the distribution question, and the two dominant answers so far are mining and purchase. Both replace the bank as gatekeeper. Neither removes the gate.

5.1 Distribution by Mining: Energy and Capital as the Ticket

Bitcoin's design, set out in the 2008 white paper, distributes new units to whoever performs the proof-of-work computation first, with total issuance capped at 21 million units by the consensus rules. This was a genuine innovation: issuance by open competition rather than by license. But the competition is won by energy expenditure and specialized hardware, which means the entry path selects for access to cheap electricity and capital equipment. Over time, issuance concentrated in industrial mining operations. The gatekeeper changed from creditworthiness to capital intensity; proximity to issuance still belongs to those who can pay for it.

5.2 Distribution by Purchase: Existing Wealth as the Ticket

Stablecoins take the opposite route: they do not distribute at all. A stablecoin enters a holder's hands only when the holder pays for it with existing money. Distribution by purchase reproduces the existing distribution of wealth one-for-one, by construction: whoever holds dollars can hold dollar stablecoins in exactly that proportion. The instrument digitizes access to the incumbent unit; it does not alter who holds it.

Both experiments demonstrate the same lesson from opposite directions. Changing the technology of money without changing the entry path leaves the distributional structure intact. Mining prices entry in energy and hardware; purchase prices entry in prior wealth; bank credit prices entry in collateral. In all three, money reaches people in proportion to what they already have.

Grant-based distribution prices entry in neither collateral, nor energy, nor prior wealth. It prices entry in verified identity: a unit allocation per enrolled participant, drawn from a supply that is fixed before distribution begins.

The GX Protocol specifies a pre-allocated fixed supply of GX 1.25 trillion. No mint function exists in the protocol, so the supply cannot be expanded by any issuer, and no unit is born as anyone's debt. Distribution proceeds by verified enrolment: each participant completes KYC verification with biometric confirmation and receives an allocation grant. No participant pays for their units, which is why the protocol is structured as a non-speculative system: the supply enters circulation in participants' hands rather than in the portfolios of early buyers who need an exit.

Governments participate in the same distribution logic. The protocol defines automatic treasury allocations proportional to population: GX 50 per participant for the first 2 billion participants globally, and GX 25 per participant for the next 2 billion. A treasury's allocation is sized by the people it serves, not by the capital it commands.

6.1 How the Entry Path Changes the Structure

Because distribution is per person rather than per unit of collateral, the Cantillon sequencing described in Section 2 does not have a first-receiver class to form around. Every enrolled participant is the same distance from issuance. Seigniorage as a private profit also disappears: there is no interest margin on the creation of units, because units are granted, not lent, and the protocol's lending layer operates as a zero-interest loan pool described in Interest-Free Currency Explained.

A fixed granted supply raises its own design question: what prevents the granted units from being hoarded rather than circulated? The protocol answers with a velocity mechanism, a circulation incentive applied to idle balances, covered in full in What Is Demurrage Currency.