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Since banks can borrow deposits from other banks, the central government has essentially no control over the lending of an individual private bank (there are also capital ratios, but that's a soft target since banks can increase their capital without receiving any more deposits). Since central banks are mandated to hit a target interest rate by injecting more money into the economy every time the interbank lending rate starts to rise (i.e. every time the banking sector in aggregate wishes to lend out in excess of its loan deposit ratio), they are also unable to limit the quantity of money in the economy without abandoning their interest rate target.

In the medium term, central banks exert some control over the level of money in an economy by raising and lowering target interest rates to change the cost of expanding the money supply to people borrowing from private banks. And of course they also have the power to change policies which directly or indirectly affect bank lending. But they don't, under current institutional arrangements, have any direct control over the amount of money created or destroyed by net changes in bank lending.




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