When it comes to money creation, many feel that since it is "created out of thin air" there is nothing backing a deposit. After all, with fractual reserve banking, there is no need to keep the currency in the bank.
Here is some insight: this idea makes no sense since there was no currency to begin with.
In this video I discuss what is backing the deposits. Double entry accounting guarantees there is something there. What is it?
▶️ 3Speak
Thank you for this insight. This understanding is crucial for demystifying the banking process and reinforcing trust in the financial system.
I got a bit confused on how deposits are backed before. Especially when I learned that banks only keep a small amount in their vault and that one needs to call before making a big withdrawal for them to prepare. I just simplified it in my mind to digital and online records. This explanation certainly helped a lot.
Especially when I learned that banks only keep a small amount in their vault
1920s thinking? What money in the vault?
When a company deposits a paycheck for an employee, does someone run down to the bank with cash? No. So how are loans going to be backed with cash when there was none involved in the deposit.
This is why I say there are so many misunderstandings since people have ideas, mostly spewed by economists, that are completely outdated.
The quicker people realize we have been using ledger based money for a century, the better off they will be.
1920s thinking? What money in the vault?
More like 3rd world country. There are still a not so many, yet not so few money in our bank's vaults. That's why big withdrawals need to be informed beforehand.
When a company deposits a paycheck for an employee, does someone run down to the bank with cash?
I've actually seen this happen loads of times, especially with small companies. They send their messengers to do it, and I see them with wads of cash depositing to the teller.
Banks dont want cash. It is dirty, they have to store it, and a pain in the ass to move around.
I've actually seen this happen loads of times, especially with small companies. They send their messengers to do it, and I see them with wads of cash depositing to the teller.
If they are in a cash business like restaurants, sure. However, they are running to employees banks with cash to had the teller and saying deposit this in Joe Smiths account, it is his paycheck.
Except that wasnt the case then either.
People romanticize something that didnt even exist. Bretton Woods was doomed from the beginning.
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