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The difference is that I have physical cash in the bank and the bank is robbed This may seem pedantic, but no! You certainly don't have physical cash at your b

The difference is that I have physical cash in the bank and the bank is robbed This may seem pedantic, but no! You certainly don't have physical cash at your bank. Only a miniscule percentage of monetary reserves are in physical form and a bank is not obliged (as a matter of fact it would be rather counter productive) to store physical cash on customer deposits.

lathiat 7y ago
It’s also not really true. At least in many countries bank balances up to some amount (eg $250,000 in Australia) are insured by the federal government. But outside of that many things could cause the bank to lose your money. And there wouldn’t be a recourse for it.
- Khol 7y ago
  I suspect you're confusing money and cash - they're two distinct things. I would be incredibly to learn that my bank had anywhere near the amount of cash stored compared to the amount of money deposited there. Cash has storage costs and pays a 0% return where deposits with a central bank have historically paid higher than that. (This isn't universally true.)
akerl_ 7y ago
I’m not sure I understand the intent of this pedantry: you’re agreeing with me. The comment I replied to compared bitcoin to cash-in-the-bank, and my point was the same as yours: while I may have handed the bank cash, my ability to get money back isn’t tied to that specific cash, or even to any amount of cash that might be stolen from the bank at all. The money is insured, and so if the bank is robbed, my ability to withdrawal my money is unchanged.
koonsolo 7y ago
It goes even further than that: a bank is unable to have such cash, since it lends out money multiple times (see https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking). So even if all central bank money would be printed in bills and coins, and would be distributed to banks, that still would be only a small percentage of the numbers on everyone's bank account. This means that those numbers on your bank account are not "money you have now", it is "money you will have in some future, when everyone pays back their loans". So that is what they mean with a "bank run". Everyone wants their money NOW, but that is impossible, since most of the money is lended out. So to the parent poster, even if there is no robbery, you will have a serious problem when everybody wants their money NOW. See what happened in Greece some years ago, where nobody was able to withdraw more than 50 euro's per day, since the banks had a crisis. Thinking the money on your bank account is yours NOW is just an illusion.
- koonsolo 7y ago
  Since people are downvoting, let me explain with an example to make things clear: Fractional-reserve banking is the common practice by commercial banks of accepting deposits, and making loans or investments, while holding reserves at least equal to a fraction of the bank's deposit liabilities. Let's say we have a 5% reserve, which is realistic if you look at EU and US. Let's say there is a new bank, and you deposit 100 euro's at that bank. I go there to lend out $95, which is allowed because the bank keeps $5. You have a nice shop, and I buy something for $95. You deposit this $95 at the bank, which they can lend out again keeping a 5% fraction. I go there and lend out $90, buy something at your shop, and you again deposit this at the bank. We do the same with $85 and $80. So you now have an account with 100 + 95 + 90 + 85 + 80 = $450. Nice! Now you go to that bank and request that money in cash.... oops. Seems weird, but this is actually how it works. Look it up if you don't believe me: fractional reserve banking!!!
  - ForHackernews 7y ago
    I suspect you're getting downvotes not out of disbelief but because most educated people in the developed world are already well familiar with the concept of fractional reserve banking. (For myself, it was covered in my 12th grade AP economics class) Your rather long comment doesn't contain any new information for the majority of readers.
    - deleted 7y ago
      [deleted]
- amanaplanacanal 7y ago
  The odds are 99.99999999999999999999% that I can withdraw my money whenever I want to. I'm willing to accept those odds.
- CaptainZapp 7y ago
  I sometimes shake my head in wonder about what gets downvoted here around, since you speak the factual truth. Think about it: if commercial banks wouldn't handle finance in the way you describe, it would be virtually impossible that they go bust. They could still be drowned by dodgy loans. But let's just say that the risk profile would be rather different.

lathiat 7y ago

It’s also not really true. At least in many countries bank balances up to some amount (eg $250,000 in Australia) are insured by the federal government. But outside of that many things could cause the bank to lose your money. And there wouldn’t be a recourse for it.

Khol 7y ago
I suspect you're confusing money and cash - they're two distinct things. I would be incredibly to learn that my bank had anywhere near the amount of cash stored compared to the amount of money deposited there. Cash has storage costs and pays a 0% return where deposits with a central bank have historically paid higher than that. (This isn't universally true.)

akerl_ 7y ago

I’m not sure I understand the intent of this pedantry: you’re agreeing with me. The comment I replied to compared bitcoin to cash-in-the-bank, and my point was the same as yours: while I may have handed the bank cash, my ability to get money back isn’t tied to that specific cash, or even to any amount of cash that might be stolen from the bank at all. The money is insured, and so if the bank is robbed, my ability to withdrawal my money is unchanged.

koonsolo 7y ago

It goes even further than that: a bank is unable to have such cash, since it lends out money multiple times (see https://en.wikipedia.org/wiki/Fractional-reserve_banking https://en.wikipedia.org/wiki/Fractional-reserve_banking). So even if all central bank money would be printed in bills and coins, and would be distributed to banks, that still would be only a small percentage of the numbers on everyone's bank account. This means that those numbers on your bank account are not "money you have now", it is "money you will have in some future, when everyone pays back their loans". So that is what they mean with a "bank run". Everyone wants their money NOW, but that is impossible, since most of the money is lended out. So to the parent poster, even if there is no robbery, you will have a serious problem when everybody wants their money NOW. See what happened in Greece some years ago, where nobody was able to withdraw more than 50 euro's per day, since the banks had a crisis. Thinking the money on your bank account is yours NOW is just an illusion.

koonsolo 7y ago
Since people are downvoting, let me explain with an example to make things clear: Fractional-reserve banking is the common practice by commercial banks of accepting deposits, and making loans or investments, while holding reserves at least equal to a fraction of the bank's deposit liabilities. Let's say we have a 5% reserve, which is realistic if you look at EU and US. Let's say there is a new bank, and you deposit 100 euro's at that bank. I go there to lend out $95, which is allowed because the bank keeps $5. You have a nice shop, and I buy something for $95. You deposit this $95 at the bank, which they can lend out again keeping a 5% fraction. I go there and lend out $90, buy something at your shop, and you again deposit this at the bank. We do the same with $85 and $80. So you now have an account with 100 + 95 + 90 + 85 + 80 = $450. Nice! Now you go to that bank and request that money in cash.... oops. Seems weird, but this is actually how it works. Look it up if you don't believe me: fractional reserve banking!!!
- ForHackernews 7y ago
  I suspect you're getting downvotes not out of disbelief but because most educated people in the developed world are already well familiar with the concept of fractional reserve banking. (For myself, it was covered in my 12th grade AP economics class) Your rather long comment doesn't contain any new information for the majority of readers.
  - deleted 7y ago
    [deleted]
amanaplanacanal 7y ago
The odds are 99.99999999999999999999% that I can withdraw my money whenever I want to. I'm willing to accept those odds.
CaptainZapp 7y ago
I sometimes shake my head in wonder about what gets downvoted here around, since you speak the factual truth. Think about it: if commercial banks wouldn't handle finance in the way you describe, it would be virtually impossible that they go bust. They could still be drowned by dodgy loans. But let's just say that the risk profile would be rather different.