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Only something like 10% of the world's money are physical bills and coins. The rest is electronic, just numbers in reputable databases. The bank can rely on th
by desas 3y ago
Only something like 10% of the world's money are physical bills and coins. The rest is electronic, just numbers in reputable databases.
The bank can rely on this fact. It only needs enough notes to support a likely amount of physical cash withdrawals each day.
- namdnay 3y ago> The rest is electronic, just numbers in reputable databases yes, but they can't fiddle those numbers. if you deposit 100$, they can lend up to 100$. no more
- desas 3y agoThat's not how the banking system works in theory or practice. It hasn't worked like that for a very very long time. Lending isn't limited by deposits, it's limited by central bank regulations. Here's what the Bank of England says [0] > if you borrow £100 from the bank, and it credits your account with the amount, ‘new money’ has been created. It didn’t exist until it was credited to your account. > Regulation limits how much money banks can create. Banks only need to maintain enough deposits to cover their liquidity needs - what they need to pay people withdrawing cash and what they need to transfer to other banks due to electronic money moving. [0] https://www.bankofengland.co.uk/explainers/how-is-money-created https://www.bankofengland.co.uk/explainers/how-is-money-crea...