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
Saldo on an account is just debt that bank owes their customer. Increasing that doesn’t make the bank owners any richer. You can say you owe yourself a billion dollars, are you rich now?
It would get the owners charged with some sort of tax fraud though, trying to remove money from their company all sneaky like without declaring it as profit.
You think Uncle Sam would allow anyone else to print money?
Because if an amount is added somewhere, it also has to show that amount leaving somewhere else. Either another account within that bank or from another financial institution. All these numbers are constantly tallied by sophisticated software, and if the numbers don’t add up, automated flags start alerting people of discrepancies.
You would have to manipulate so many systems, and have multiple people with various levels of clearance, all working together, to be able to pull something like this off, and even then, it would get discovered later on during some audit.
In a sense, a bank’s whole job is to keep proper track of those numbers in the database. The bank is only allowed to keep track of our money because everyone trusts the bank to do its job properly. If the bank makes an invalid change to the database and somebody notices, the bank will lose the trust of its customers and people will start taking their money out of the bank and moving it to another one. So, banks have a strong motivation to not mess with the numbers, or to at least seem like they aren’t messing with the numbers.
It is happening constantly. You just have to be big enough bank, then you can create money from thin air because of leverage. This is why we have inflation.
My mental model always is:
There are two main ways a bank can add money to their account; either they get a “digital” transfer from another source (in which case the source can be traced and checked) or someone deposits actual physical money, in which case the bank has the physical object stored somewhere in their vault. Either way the financial system can be audited and checked for consistency.
For money to have been added to one account, money needs to have left another account (whether on the same bank or some other bank). This is the fundamental accounting practise that makes what you say impossible to get away with.
The short easy answer is that the system has automated security and auditing and just making money out of nothing to add to the balance sheets would be caught in short order. And the legal ramifications are not worth the risk of something that will get caught.
They do this all the time with overdraft. Oh, you don’t have enough money? Well we’re going to take money from you and give it to this rich guy as interest so he has more.
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.
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