1694William Paterson (1658-1719) | Founder of the Bank of England

You might not understand the above unless you can handle a bit of basic economics. Allow Dr Quigley (Bill Clinton's history teacher) to explain it for you:

“…the founding of the Bank of England by William Paterson and his friends in 1694 is one of the great dates of world history. For generations men had sought to avoid the one drawback of gold, its heaviness, by using pieces of paper to represent specific pieces of gold. Today we call such pieces of paper gold certificates. Such a certificate entitles its bearer to exchange it for its piece of gold on demand, but in view of the convenience of paper, only a small fraction of certificate holders did make such demands. It early became clear that gold need to be held on hand only to the amount needed to cover the fraction of certificates likely to be presented for payment; accordingly, the rest of the gold could be used for business purposes, or, what amounts to the same thing, a volume of certificates could be issued greater than the volume of gold reserved for payment…

“In effect, this creation of paper claims greater than the reserves available means that bankers were creating money out of nothing. The same thing could be done in another way… deposit bankers discovered that orders and checks drawn against deposits by depositors and given to a third person were often not cashed by the latter but were deposited to their own accounts. Thus there were no actual movements of funds, and payments were made simply by bookkeeping transactions on the accounts. Accordingly, it was necessary for the banker to keep on hand in actual money (gold, certificates, and notes) no more than a fraction of the deposits likely to be drawn upon and cashed. The rest could be used for loans, and if these loans were made by creating a deposit (account) for the borrower, who in turn would draw checks upon it rather than withdraw it in money, such ‘created deposits’ or loans could also be covered adequately by retaining reserves to only a fraction of their value. Such created deposits also were a creation of money out of nothing, although bankers usually refused to express their actions, either note issuing or deposit lending, in these terms. William Paterson, however, on obtaining the charter of the Bank of England in 1694, to use the moneys he had won in privateering, said ‘The bank hath benefit of interest on all moneys which it creates out of nothing’”