What happens to cash when you make an online purchase?

Question

When you buy something online or with a credit card, what happens to the physical money that the transaction represents? Are there just trucks of money being carted around to different banks? Does the number I see on my bank about even represent real, physical cash?

In: Economics

Answer 1

You should think of cash as “physical” money. The only reason a 1-dollar bill is worth one dollar is because the US government says “this is worth one dollar”.
In the case of a credit card transaction, your bank reduces X dollars from its account sheet and another bank adds the same amount of dollars to its account sheet.The only thing that matters is that the total amount of dollars is the same.