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

No one is really answering properly so I’ll give it a go.

Money is not just a number in a database. Banks also don’t simply store your money.

Banks use what’s called double entry book keeping. Their accounts have two sides, credit and debit. To credit one account you must debit another account. So you can’t just create money, or add it. You must debit it from somewhere else first.

Banks also don’t hold onto your money. Say you keep $500 in your bank account, and the savings interest is 4%. They will then loan someone $400 for 6%.

Banks don’t create money basically, they can only credit and debit at the same time.