We study exchange rate determination in a 2-country model where domestic banks create each economy's

supply of domestic and foreign currency. The model combines the UIP-based and monetary theories of

exchange rate determination, but the latter with a focus on private rather than public money creation. The

model features an endogenous monetary spread or excess return in the UIP condition. This spread

experiences sizeable changes when shocks affect the relative supplies (of bank loans) or demands (for bank

deposits) of the two currencies. Under such shocks, monetary effects dominate traditional UIP effects in

the determination of exchange rates and allocations, and this becomes stronger as domestic and foreign

currencies become more imperfect substitutes. With these shocks, the model successfully addresses the

UIP puzzle, and it is also consistent with the Meese-Rogoff and PPP puzzles.