A commercial bank can create money by

A commercial bank can create money by lending to borrowers. When a bank lends money to a borrower, it creates a new deposit in the borrower's account, which is essentially new money. This new deposit is backed by the bank's assets and the promise of the borrower to repay the loan with interest. This is possible because banks are only required to keep a fraction of their deposits as reserves, known as the reserve requirement. The reserve requirement is set by the central bank and varies by country. When a bank makes a loan, it only needs to keep a fraction of the loan amount as reserves, which allows it to create new money by issuing a loan. This process is known as the fractional reserve banking system, and it allows banks to create more money than they hold in reserves. However, it also means that banks are exposed to risks if a large number of borrowers default on their loans.