Bank of England's article on money creation states:
Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money
Now when new money gets created it obviously reduces the value of existing money: citizens' purchasing power gets reduced.
I wonder how the interest rate logic goes; currently banks for example receive 100% of the interest paid for the loans they make. But if this money is from citizens shouldn't they get their share theoretically as well?
One argument for banks taking interests to themselves could be that banks carry the risks for the money not getting paid back. However, aren't citizens carrying the risks as well because if money is not paid back it does not get destroyed (as would happen when the money is paid back) and the related purchasing power would not be restored (just like with any loans which are not paid back)?
Another supporting argument could be that the process of granting loans involves some work (e.g. studying the backgrounds of potential customers; paying salaries for employees) but shouldn't this be between the borrower and the lender? If citizens are involved in lending (by giving up their purchasing power) shouldn't they get a share?
Am I just missing something obvious?
Doesn't this make it extremely important for people to minimize the amount of currency they store e.g. in bank accounts, as opposed to for example investing it (assuming the amount of debt commercial banks create is likely to increase over time)?