That was a weird thread.
It’s difficult to understand why the OP would tell others to “do more reading”, while simultaneously asking a question. If the OP had done reading personally, then wouldn’t they already have the answer to their own question? Wouldn’t they have figured it out?
But it’s actually an interesting question, when approached the right way. I hope the following might be a slightly more clear presentation of how it works.
Banks absolutely can buy currency in circulation (“M0”) by increasing their own deposit obligations.
This is normal. Happens all the time. This is called a “deposit” at the bank. When you show up at the teller and plunk down a Franklin to put in your account, this is exactly what the bank is doing. They are buying your physical cash, and issuing you a deposit liability in exchange for that cash. And that fact, almost by itself, explains why banks can’t get “infinite money” out of this process.
In order for the bank to get that physical cash, it needs to convince someone to sell them a physical dollar in exchange for a deposit liability dollar. Why do people give banks physical dollars in exchange for having a credit to their account at the bank? One dollar handed over = one dollar change in the ledgers. Why? Well, it’s useful to have a bit of money in checking to write checks or use a check card. It’s also useful to have a bit of money in savings, earning a small rate of return, rather than earning 0% in the sock drawer. This is to say that deposit liabilities are actually liabilities for banks. They’re not free. Banks have to provide a service in order to entice people to exchange their dollars for bank account numbers. This service costs the bank money. And what does the bank get out of that money? Physical cash?
So what?
The value of holding physical currency is not, generally speaking, going to match the cost of holding large deposit liabilities. (There’s a potential wrinkle on this given IOR, but we can ignore that wrinkle at present.) So while it’s technically possible that a bank could use its own vault cash as required reserves in order to issue more deposit liabilities, in order to increase its vault cash required reserves, in order to issue more deposit liabilities… there is no incentive for any bank to do this. The cash in the vault is (basically…) just sitting there are doing nothing. But the deposit liabilities are a genuine cost to the bank. The bank would be losing money. It would become insolvent. The assets aren’t valuable enough to justify the increase in the liabilities.
And all of its depositors would then want to pull their deposits out of the bank. An insolvent bank can’t provide the services, most especially the interest payments, that depositors want from their banks.
The business of banking is not buying low-return cash in exchange for low-return deposit liabilities. The business of banking is buying high-return loans in exchange for low-return deposit liabilities. High-return loans can justify the costs of those deposit liabilities. And if the loan returns are sufficiently high enough, banks can offer higher interest rates on their accounts, with which they can buy M0 (i.e. attract depositors) who will continue to give them low-interest deposits which can help them continue to finance their high-interest loans.
A final point on all of this is that even if a bank could mysteriously convince everyone to fork over their physical cash in exchange for deposit liabilities, there is still a limit on the process. The private bank itself does not create the M0 (or the MB). There is a limited amount of monetary base in the world, and even if the private bank gobbled up literally all of it, they can’t create more by themselves.
Base money is created by the government bank. So even if one private bank somehow monopolized all available reserves, that still wouldn’t dictate “infinite money”, given the ultimate limitation on base money that is not determined by them.
