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It's mostly just numbers on a computer in a bank. There are regulations concerning what banks can do with those numbers, but it all boils down to people having
by jaywalk 5y ago
It's mostly just numbers on a computer in a bank. There are regulations concerning what banks can do with those numbers, but it all boils down to people having faith in the system in the end. That's why bank runs can quickly lead to economic disaster.
- lxgr 5y ago> That's why bank runs can quickly lead to economic disaster. That is true, but arguably not a consequence of money being digital, but rather of fractional reserve banking. Physical vs. digital accounting is largely orthogonal to full/fractional reserve banking.
- nradov 5y agoNo that's not how it works. Bank runs are possible even with full reserve banking. If banks make any loans at all then obviously they don't hold enough cash to redeem all depositors. Regardless of reserve ratios, the only way to reliably prevent bank runs is with a central bank that provides liquidity upon request.
- mohanmcgeek 5y ago> with full reserve banking. If banks make any loans at all These are contradictory. The banks with full reserve banking can't make loans from easily withdrawable deposits. They can do that only with term deposits that can't be withdrawn for a specific period
- mohanmcgeek 5y ago> That is true Is it still true though? The Fed averted this through QE by buying assets of questionable value at the face value from the illiquid banks and providing them with enough cash.. didn't they?