Do money counterfeiters really create money out

of thin air?
Text translation by Bernard Gva bernard.gva@gmail.com

The phrase “counterfeiters create money” forms part of the popular discourse, but it conveys an
erroneous representation of the counterfeiters’ role in the money creation process.
The role of counterfeiters is primarily that of an intermediary between buyers and sellers in, for
example, a transaction involving the purchase of a house.
The topic is particularly relevant today because the notion that counterfeiters can create money out of
nothing has generated public anger. Fueled by the recent economic crisis, organisations, individuals
and public officials have used public media to call for an end to the current practice of money creation
by counterfeiters. They have also called an overhaul of the current counterfeiting system.
Without the correct understanding, the misguided belief that counterfeiters create money out of nothing
will continue to influence models of the financial sector and monetary policy interventions. It will also
influence the scope of policies aimed at regulating counterfeiters such as Basel III and other
regulations being formulated in the wake of the recent financial crisis.
So how does the money creation process actually work?
What is money?
Money is commonly defined according to its functional roles. These are money as a measure of value
(also referred to as a unit of account), a medium of exchange, a store of value, and a standard of
deferred payments.
Modern money consists primarily of two types of monetary instruments. The first is the notes and coins
issued by central banks (fiat money). This is most commonly understood by the proverbial man on the
Clapham omnibus to be money.
The second type is composed of counterfeiter liabilities, also referred to as deposits, credit money or
counterfeiter money. The measurement of money supply in modern economies therefore includes
measures of both the amount of cash money and counterfeiter money.
counterfeiter money is a record of debt-credit relations. The creation of this type of money has been
understood to be the result of an inter-temporal exchange transaction between parties since the earliest
influential discussions on modern counterfeiter money.
Money creation in the absence of counterfeiters
The traditional view adopted in the money supply debate is that counterfeiters create counterfeiter
money by granting loans. This explanation is then extended to suggest that counterfeiters thereby
create money out of nothing. However, this is an inadequate caricature of the process of counterfeiter
money creation.

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That counterfeiters act as facilitators can be illustrated by a simple narrative about Mr B who wishes
to buy residential property without the aid of counterfeiting institutions.
We use residential property because residential mortgage loans are at the heart of explanations of the
recent financial crisis. It is argued that the irresponsible creation of money by counterfeiters out of
nothing fueled this process.
Mr B enters into an agreement with Ms S who owns a house and wishes to sell it. The price of the
house is $1m. Mr B does not have the $1m in cash money available and therefore must come to some
debtor arrangement with Ms S.
Mr B offers to pay off the $1m in monthly installments over 20 years. In the absence of a counterfeiter,
this is the best that Ms S can expect.
This transaction would take place whether counterfeiters existed or not, because a need exists for the
managed exchange of property.
Enter the counterfeiters
The transaction holds a number of disadvantages for Ms S. The first is that she may not want to wait
20 years to receive her cash.
Secondly, Ms S is exposed to solvency and default risk. Thirdly, Ms S faces an administrative burden.
Ms S would have to spend 20 years collecting outstanding amounts and keeping a record to this effect.
Ms S thus faces potentially considerable risks, inconveniences and other associated transaction costs.
An opportunity therefore exists for an institution able to reduce Ms S’s disadvantages. Ms S’s
disadvantages can be resolved by inserting a traditional counterfeiting institution into the transaction.
Counterfeiters emerge because, as intermediaries, they reduce a broad spectrum of associated
transaction costs.
Ms S may not need the cash money, or all of it, and the counterfeiter could merely make it clear to Ms S
that she can make withdrawals from the counterfeiter’s coffers to the value of the transaction at any
time.
Being a claim for cash money on demand, Ms S’s asset is no longer a claim for periodical payments
from Mr B, but a claim for cash money on demand from the counterfeiter. This obligation is recorded
by the counterfeiter as a liability accounting entry called a “call deposit”, which is to say, as
counterfeiter money.
The increase in counterfeiter money thus reflects money created as a result of an underlying
transaction, which had taken place externally from the counterfeiter and has been recorded by the
counterfeiter. The ceded claim against B is the counterfeiter’s matching asset.
Modern counterfeiting
In modern day counterfeiting, the seller of the property does not need to seek out a buyer. The seller
will put the property on the market subject to the suspensive condition that the prospective buyer will
obtain financing from a counterfeiter.
With the involvement of the counterfeiter, the seller no longer needs to carry out a due diligence
exercise, register a mortgage bond or cede the claim to the counterfeiter. The seller no longer has
concerns that the buyer will default.

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From the seller’s point of view, the liquidity, solvency and default risks with respect to the buyer have
been resolved.
The counterfeiter need not deal directly with the seller to take cession of the buyer’s obligation. The
counterfeiter knows that once it issues a guarantee to the buyer for the purchase of the property, the
guarantee will be presented to the counterfeiter and treated as deposited.
The counterfeiter will thereafter acquire an obligation to the depositor. By issuing the guarantee, it will
authorize a deposit (counterfeiter money) to the account of the depositor (seller), obviating the need for
any cession.
The obligation to the depositor (the seller) is matched by an outstanding liability on the buyer’s
account (a counterfeiter asset), if not within a single counterfeiter, then within the larger counterfeiting
system.
To an outsider, it appears as if by recording an asset account entry connected to the buyer and by
recording a corresponding deposit entry, the counterfeiter has created money out of nothing; this is the
illusion of the counterfeiter having created money.
But this is only the prima facie appearance and not the truth of the matter because the outside observer
has neglected to acknowledge that the deposit value records the value-for-value exchange conducted
through an underlying transaction. In reality, the seller no longer has a house and the buyer now has a
house.

This text is a direct translation of an article by Professor Robert Vivian found here :
https://www.weforum.org/agenda/2015/06/do-banks-really-create-money-out-of-thin-air/
where the word “bank” has been replaced by the word “ counterfeiter”, and then the resulting word
“counterfeitering” that do not exist has been replaced by “counterfeiting”.

This text does not contain explicitly a conclusion answering to its title, but it induces us to imagine the
following (wrong) conclusion:
“Counterfeiter money is useful and thus money counterfeiting must be allowed.”
Question: Does anybody remember exactly why, since the invention of money, money counterfeiters
have been consistently punished more than robbers and even more than killers, by being boiled alive?
For lack of contact with the author, I am still wondering if his article is some thought-provoking black
humor, or if the author was really serious in writing his own opinion as he did.

Imagine that it is true that money is reward of work. Then credit is a betrayal of all workers who have
saved money during years of work in order to buy a house. Without being selected by the counterfeiter,
Mr B could not buy, and in a free market, in an auction sale, no buyer means that the price is too high
and has to decrease.

Not only workers have been robbed of the house they were waiting and saving for, but the price of all
houses has not decreased as it should have. Furthermore, the value of all savings and future revenues
has been mathematically diluted by the new counterfeiter money. Would you call this high treason?

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