You have to understand that in our present economy, we have two kinds of money. We have paper money and electronic money, which is the kind of money we use when we make transactions with our phones.

If we think of money in terms of our daily use, there doesn't seem to be any difference between the two types of money. They are denominated in the same currency. If you buy a bag of rice, it costs the same, regardless of whether you pay with cash or if you pay with a transfer. So, the difference between the two seems to be merely a matter of convenience.

But when we ask this question, "How is money created?" we then see that there is indeed a big difference between the two kinds of money in our current system.

Let's start with the easy one. Paper money is created by the central bank – we can read that on the banknotes. If anyone else tries to create this kind of money, and if they are found out, they will go to jail for counterfeit.

Electronic money is a little trickier. The accounts that we have in our banks are called deposit accounts, and that makes it sound as if electronic money is just paper money deposited in the bank. It may look like that is the case, however, it is very misleading in terms of understanding how money works in our current economy, because electronic money is created by banks when they issue new loans. So, what happens when banks give you a loan of 5,000,000 naira? They are actually creating 5,000,000 naira and then adding it to the total supply of money in the economy.

Let's take a look at how most people think the banking system works. The saver deposits his money in the bank. The bank lends the money out to a borrower, the borrower pays back the money with interest. The bank gets to keep some interest earned, and so does the saver. It's a win-win situation for everyone.

But that's not how it works. Let's take a look at how it really works. We will need to remove the saver because he plays no part in this.

A man needs a loan for a home. The bank creates a promissory note and the man signs. The bank then creates a bank deposit in the man's name – new money has just been created. Commercial banks like First Bank, UBA, Zenith Bank, Access Bank, FCBM all have the power to create and receive interest from that new money. New money created out of thin air.

I know this sounds unbelievable. I didn't believe it either, but the reality of how money is created today differs from the description found in our economic textbooks. Rather than the banks receiving deposits when people save and then lending it out, bank lending creates deposits.

One common misconception is that banks act simply as intermediaries lending out deposits that savers save with them. Viewing banks simply as intermediaries ignores the fact that, in reality, in the main economy, commercial banks are the creators of deposit money. Rather than banks lending out deposits placed with them, the act of lending creates deposits.

If you look at our total money supply, you see that paper money created by central bank makes up about 5% of money in circulation, whereas electronic money created by commercial banks makes up 95% of the money supply.

95% of the money in circulation is created by these bank loans – money that was created out of thin air. About 5% is cash that you hold in your hand that's moving around the economy. But the vast majority of money in the economy is created by banks through these loans.

These banks have an amazing secret going on – they can create money out of thin air, loan it out, and collect interest. No wonder bank CEOs are so rich.

So, when we get excited about all these new and smart ways of paying for things, not only with ATM cards but also with internet banking and smartphones, we have to remember that the price that we've paid for this convenience is that we have essentially privatized the creation of money in our society to just a few banks.

So, is there a problem with this system of money creation? And if there is, why is it a problem? I believe that it is a problem, and I'm going to tell you why.

The problem is not that the banks are evil or bankers are greedy. The problem is that banks are banks, which means that they are governed by certain incentives which make them create money in a way that gives them profits but may not be in line with the overall needs of the economy. This has at least two very negative consequences.

1. Inequality
If you're rich, if you already have money, if you already have assets, you can borrow more money at a very low interest rate. If you have little money, however, you have to pay high interest rates to these banks for borrowing money. And, of course, if you're poor and you have no money at all, then you can't borrow anything.

2. Concentration of Power
If you can decide when to create new money, if you can decide how much new money to create, if you can decide the price at which this money is lent into the economy, if you can decide for what purposes it is lent to the economy, then you have enormous power not only over the economy but also over societies. So, by privatizing our money system and the creation of money, we have essentially handed over a very vital power of society to the financial sector.

I believe that's why many of our politicians today appear very weak. It's because the crucial decisions about the country are not made in Aso Rock by the federal government, or at the Senate House by legislators, or in the courtroom of the judiciary – they're made in the boardroom of major private banking corporations by banking executives.