I ask because since our money is backed in value (a precious resource like gold and oil) and doesn’t leave the country, doesn’t it also mean that our wealth remains intact as a nation regardless of whether or not the bank has it? (Ie, us citizens have it, so it doesn’t matter if it’s in a bank or not- the wealth is held by a U.S. citizen).
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First, your money is not backed by anything other than the confidence that you and everyone else can use that money to purchase goods and services or to make investments. There’s literally nothing else backing that money. You can’t trade it in for a set amount of gold or oil. Except if you want to buy gold or oil, and even then the price of gold and oil fluctuates based upon whether people want to buy gold or oil. So the more people who want to buy gold or oil, the more money you’re going to have to spend to get the same amount of gold and oil you could have gotten before demand went up.
Second, if everyone sought to withdraw their money from banks at the same time, there would be disastrous economic consequences. Simply put, the banks do not have all the money on deposit available to disperse. They have some smaller amount, called a reserve, on hand to distribute. What you describe is a run on a bank (where many depositors seek to withdraw all their money at once), and a run on a bank is disastrous for that bank. It will almost certainly cause the bank to fail. If that happened simultaneously at many banks or all the banks, economies would collapse since people would both not have all their money, and not have any confidence in the money they do have.
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