in modern banks money is just a number in a database, right? What stops the bank owners from just adding an amount to a saldo of an account?

Question

in modern banks money is just a number in a database, right? What stops the bank owners from just adding an amount to a saldo of an account?

In: Technology

Answer 1

Banks “create” new money all the time.

When a bank provides a loan, it does not physically transfer existing money from its reserves but rather credits the borrower’s account with a deposit of the loan amount. This deposit then becomes part of the money supply.

So, whenever someone gets a loan, there are suddenly new dollars circulating that didn’t exist before.

Chopping a pizza into more slices doesn’t mean there is suddenly more pizza; it just means each slice is smaller and worth less than it was.

Likewise, creating more dollars doesn’t mean there’s more value in the economy; it just means each dollar is worth less.

And that’s where inflation comes from.