Does the securitization lead to the infinite money creation? A structural comparison

Abstract

A major issue is of credit creation and control which is vital for the development of a healthy economy and financial system. Creation of credit money has become an imperative not only for smooth running of trade industry and commerce but for fiscal requirements as well. We argue that the concept of securitization will cause another level of money creation. Put differently, the securitization process will lead to the infinite money creation in the economy by selling and re-selling the debt to third party. In this paper, we will show the traditional money creation by central banks as monetary tool to control money supply and investigate how the commercial banks can create money by securitization which essentially lead to financial crisis. Last but not the least, the money creation from Islamic perspective is also discussed.