Money is largely created by commercial banks. Let me quote from a 2014 report by Bank of England titled "Money creation in the modern economy."[0] Follows selection of excerpts from the report's Overview section.
"In the modern economy, most money takes the form of bank
deposits. But how those bank deposits are created is often
misunderstood: the principal way is through commercial
banks making loans."
"Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits."
"Rather than banks receiving deposits when households
save and then lending them out, bank lending creates
deposits."
"The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’."
I recommend reading the whole report. It is meant to be readable by the non-academic and is not dumbed down either. The report is part of Bank of England's Quarterly Bulletin from 2014[1], it contains other similar articles like "Money in the modern economy: an introduction."
Not to disagree with the point you're making, but relying on a bunch of references to Bank of England sources is not really an un-biased argument. They have a vested interest in you assuming they're doing "the right thing" but have also been implicated in the whole LIBOR scandal[1], so I now tend to take their press releases with a handful of salt.
"In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans."
"Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits."
"Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits."
"The amount of money created in the economy ultimately depends on the monetary policy of the central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’."
I recommend reading the whole report. It is meant to be readable by the non-academic and is not dumbed down either. The report is part of Bank of England's Quarterly Bulletin from 2014[1], it contains other similar articles like "Money in the modern economy: an introduction."
[0](http://www.bankofengland.co.uk/publications/Documents/quarte...) [1](http://www.bankofengland.co.uk/publications/Pages/quarterlyb...)