Money creation is realized by banks via lending to firms and households, bond purchases from the government, dividend payments to households, and interest payments to them all. On the other hand, money destruction is realized via repayments by firms and households, sales of bonds, redemption by the government, equity issuance to households, and interest receipts from them all. […] When the bank approves a loan application from a borrower, it records the loan as an asset on the balance sheet. Simultaneously, the bank credits the borrower's bank account with a deposit of the size of the loan. Then, we can see both the loans appearing on the asset side and an equal amount of the deposits appearing on the liability side. […] Bank lending simultaneously creates a loan and a matching deposit, thereby creating new money instead of transferring the deposits or the reserves issued by the central bank.
Principal repayment is the money destruction process opposite to bank lending. When a debtor repays an existing loan, he or she must use the deposits in his/her bank account to repay the debt owed to the bank. As the repayment occurs, the bank reduces both the deposits and the loans by the amount equal to the repayment. Thus the repayment destroys money, which is illustrated by the change in the balance sheet of banks in Panel B of Fig. 2. p.7