I start by analysing monetary and credit policy, because, however unpalatable it may be, banks – or rather credit – are fundamental to the functioning of economic systems. National banking activity is controlled by a central bank, which regulates the liquidity in the economic system and, indirectly, the flow of credit. As a child, I was fascinated by the idea that “someone” had the power to print money. This someone is the central bank, which has the power, it seems, to create wealth out of nothing. It is no coincidence that the creation of value from nothing has fascinated over the years many politicians, and even the film industry, for example it is the focus of the successful Spanish television series La casa de papel, and the famous 1956 Italian movie about forgers La banda degli onesti.

Credit appears to have magical qualities because, by creating money, the central bank is able to provide liquidity that allows the high-street banks to lend to entrepreneurs and consumers. Leaving consumer credit aside for the moment, what is remarkable is that credit enables entrepreneurs to invest, create new products, develop new activities and increase production. However, there is no “magic potion”, just the reality of the money printed by the central bank. This money that is created (printed) is used for central bank loans, which, eventually, must be repaid to the central bank.

The attraction of easy credit

To introduce the subject of credit, I will use the example of a small country that straddles northern Europe and Russia. What is interesting about this country is that it is one of the few in the world whose economy is still organized on a five-year plan and mostly follows the classic Soviet-style approach. In this system, the central bank is not independent and, thus, the political authorities directly control the management of credit. For the last 20 years, the country has often used credit to excess to support the national construction market and to make the economy grow.