Positive Money claims it is. But I beg to differ.
Positive Money has done a good job in some respects, as pointed out by Victoria Chick. (See first two minutes of this video clip.) PM has stirred things up, and made everyone think about money. Plus some of PM’s critics are intellectual pigmies, who have no grasp of economics at all, e.g. UK Column and Detlev Schlichter (who never uses one word when a hundred will do).
Anyway, PM does make some mistakes (as indeed we all do). In particular, the argument behind their much publicised claim that 97% of money in circulation is commercial bank created isn’t quite right. Their argument goes as follows.
3% of money is physical cash (£10 notes, etc), ergo the rest must be commercial bank created. Now the flaw in that argument is that it leaves out central bank created money (monetary base) which is not physical cash. That’s central bank created money (which like most money) takes the form of a book-keeping entry (done on computers nowadays).
The ACTUAL AMOUNT of the latter “central bank book-keeping” money is normally no large compared to the other above mentioned types of money, thus the 97% figure won’t be far out – NORMALLY. However, we aren’t in normal times at the moment: in particular, central banks have created large amounts of money recently so as to effect QE.
So, at a wild guess, the proportion of money which is not commercial bank created might be about 90% at the moment, rather than 97%.
Are reserves a form of money?
Doubtless some readers will claim there’s a flaw in the above argument, namely that bank reserves (or monetary base in the books of the central bank) is not a form of money available to bog standard bank depositors like you and me. Well it’s true that standard depositors don’t have DIRECT access to central banks. But they do have access using their commercial bank as an agent.
To illustrate, if person X is paid money by the central bank as a result of the above QE (i.e. X sells government debt to the central bank), then X’s account at their commercial bank is credited. Plus the latter bank’s account at the central bank is credited.
But X has complete freedom to do whatever they want with that central bank money. If X wants the money in the form of physical cash, then X’s commercial bank just has to get that money, and sharpish, from the central bank, and give it to X.