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> In reality, the bank does not just store the money we deposit. It loans away/invests most of the money that people deposit. Our money does not sit idle in a l

> In reality, the bank does not just store the money we deposit. It loans away/invests most of the money that people deposit. Our money does not sit idle in a large pile in a vault. Nope. In reality the money doesn't exist. Amazing how many people think that somewhere a cartload of money is physically moving every month when they get paid. When was the last time you deposited anything in a bank? The abstraction is even higher than that. It's just numbers in a computer system. The abstractions work because banks are "too big to fail".

ttoinou 2y ago
Agreed. But a bank failing doesn’t mean the financial system would be down though. We need to get rid of bad apples. Free banking
IshKebab 2y ago
I don't think the author was under the impression that banks physically store money. They meant the digital currency does not sit idle on the bank's asset list. They're just using normal human language.
- globular-toast 2y ago
  The deposits aren't assets to the bank, they are liabilities. The loans are their assets (your liability is their asset). They don't need to "do anything" with your deposit because it doesn't exist. If I increment the number 2 to the number 4, have I brought something into existence, in particular 2 "things"? What is that? Why can't I just bring 3 things into existence without incrementing the initial number? If this sounds silly it's because it is. I thoroughly recommend anyone who is confused to a) do their own accounts and b) invent a silly currency inside your accounts and start a bank for your imaginary friends. Just add trust and government support to your bank and you'll be like any other bank.
  - IshKebab 2y ago
    > They don't need to "do anything" with your deposit because it doesn't exist. Uhm yeah they do. If they take my money and then just do nothing with it then they won't make any money from it. Banks invest your money. (I don't think that's the main way they make money - it's probably mostly from credit card interest, but they definitely do it.) The money you pay into banks absolutely exists in every sense. Banks can create money when they issue loans, which I suppose you could argue doesn't exist. But they aren't allowed to create unlimited money. I'd say it exists as much as any other money exists.
    - globular-toast 2y ago
      You're wrong, but you're far from alone. Essentially the way the whole finance industry works is there is an enormous gulf between their understanding of money and the general public's understanding. They don't contribute anywhere near as much to society as people think, in fact they fuck a lot of things up, but they run the books, of course they'll come out on top. There's a great intro to how banking really works today here: https://positivemoney.org/how-money-works/banking-101-video-course/ https://positivemoney.org/how-money-works/banking-101-video-...
xyzzy123 2y ago
This is going to sound weird but even if it was actual coins (say) would that make the whole thing any more "real"? Either way it's a symbolic system and it doesn't really matter if you execute it on an abacus, or in a digital computer, or by writing in a book and carting bags of coins around. I think the parts that are missing from most people's mental model are things like the role of the central bank, and the fact that lending limits are influenced but not determined by deposits.
- JonChesterfield 2y ago
  Yes, physical coins or grams of gold or whatever are more real. Primarily because they add inertia to changing the float, it takes time to find more gold or make more coins. You can't 10x the supply overnight. Things changing more slowly damps out oscillations.
- globular-toast 2y ago
  > This is going to sound weird but even if it was actual coins (say) would that make the whole thing any more "real"? Yes, because then there would be a physical limit on what banks can do. They would have to invent cloning machines or alchemy or whatever to do what they currently do. In other words, it would force bank to actually do the model most people (including the author) have in their heads, namely a bank stores cash and lends it out (called fractional reserve banking). In reality, without any such physical constraints, the banks are essentially free to "create" money out of thin air by issuing loans. That's how the money supply became 99% "bank money" and only ~1% physical money.
jampekka 2y ago
Indeed banks don't loan/invest deposits. Banks conjure money out of thin air when a loan is made. Some amount of deposits (a small fraction of the loans) is sometimes needed, although e.g. USA has scrapped fractional reserve demands. I guess people have hard time accepting this because it seems too absurd to be true. Also it's common to confuse money to be a scarce resource/commodity because that's how it looks like for most individuals (and that's the story usually pushed for us plebs).
Vecr 2y ago
Fractional reserve backing is old school, zero reserve banking is where it's at.

ttoinou 2y ago

Agreed. But a bank failing doesn’t mean the financial system would be down though. We need to get rid of bad apples. Free banking

IshKebab 2y ago

I don't think the author was under the impression that banks physically store money. They meant the digital currency does not sit idle on the bank's asset list. They're just using normal human language.

globular-toast 2y ago
The deposits aren't assets to the bank, they are liabilities. The loans are their assets (your liability is their asset). They don't need to "do anything" with your deposit because it doesn't exist. If I increment the number 2 to the number 4, have I brought something into existence, in particular 2 "things"? What is that? Why can't I just bring 3 things into existence without incrementing the initial number? If this sounds silly it's because it is. I thoroughly recommend anyone who is confused to a) do their own accounts and b) invent a silly currency inside your accounts and start a bank for your imaginary friends. Just add trust and government support to your bank and you'll be like any other bank.
- IshKebab 2y ago
  > They don't need to "do anything" with your deposit because it doesn't exist. Uhm yeah they do. If they take my money and then just do nothing with it then they won't make any money from it. Banks invest your money. (I don't think that's the main way they make money - it's probably mostly from credit card interest, but they definitely do it.) The money you pay into banks absolutely exists in every sense. Banks can create money when they issue loans, which I suppose you could argue doesn't exist. But they aren't allowed to create unlimited money. I'd say it exists as much as any other money exists.
  - globular-toast 2y ago
    You're wrong, but you're far from alone. Essentially the way the whole finance industry works is there is an enormous gulf between their understanding of money and the general public's understanding. They don't contribute anywhere near as much to society as people think, in fact they fuck a lot of things up, but they run the books, of course they'll come out on top. There's a great intro to how banking really works today here: https://positivemoney.org/how-money-works/banking-101-video-course/ https://positivemoney.org/how-money-works/banking-101-video-...

xyzzy123 2y ago

This is going to sound weird but even if it was actual coins (say) would that make the whole thing any more "real"? Either way it's a symbolic system and it doesn't really matter if you execute it on an abacus, or in a digital computer, or by writing in a book and carting bags of coins around. I think the parts that are missing from most people's mental model are things like the role of the central bank, and the fact that lending limits are influenced but not determined by deposits.

JonChesterfield 2y ago
Yes, physical coins or grams of gold or whatever are more real. Primarily because they add inertia to changing the float, it takes time to find more gold or make more coins. You can't 10x the supply overnight. Things changing more slowly damps out oscillations.
globular-toast 2y ago
> This is going to sound weird but even if it was actual coins (say) would that make the whole thing any more "real"? Yes, because then there would be a physical limit on what banks can do. They would have to invent cloning machines or alchemy or whatever to do what they currently do. In other words, it would force bank to actually do the model most people (including the author) have in their heads, namely a bank stores cash and lends it out (called fractional reserve banking). In reality, without any such physical constraints, the banks are essentially free to "create" money out of thin air by issuing loans. That's how the money supply became 99% "bank money" and only ~1% physical money.

jampekka 2y ago

Indeed banks don't loan/invest deposits. Banks conjure money out of thin air when a loan is made. Some amount of deposits (a small fraction of the loans) is sometimes needed, although e.g. USA has scrapped fractional reserve demands. I guess people have hard time accepting this because it seems too absurd to be true. Also it's common to confuse money to be a scarce resource/commodity because that's how it looks like for most individuals (and that's the story usually pushed for us plebs).

Vecr 2y ago

Fractional reserve backing is old school, zero reserve banking is where it's at.