Like what drops them from just adding some extra 00 as everything is digital, especially in third World countries?
In: 1
Laws, in general, but banks do actually do this. In fact, it’s one of the reasons banks and “paper money” was invented. It’s called “fractional reserve banking”: a bank gives out more money than it actually has, in physical assets, with the idea that not everyone is going to try to withdraw all that money at once. They only keep a fraction of the money they “pretend” to have in reserve, and the size of this reserve is regulated by some law.
When everyone does try to withdraw their money at once, that’s called a “bank run”, and it was a major problem when banks and paper money were first introduced. It’s bad for everyone, the bank collapses and all the people that still had money in there lose it. Nowadays, there are a bunch of sophisticated legal and societal safeguards in place to prevent this from happening.
Latest Answers