This article looks at the credit or money creation theory which uses the concept of fractional reserve lending. This is where banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all deposits immediately upon demand.
http://en.wikipedia.org/wiki/Fractional-reserve_banking
You can view this process on a youtube video:
http://www.chrismartenson.com/crashcourse/chapter-7-money-creation
