Since most money are just electronic with no real bank note behind them, what stops some bank from just adding Billion dollars for their accounts and use it for trading? If the answer is in some form of government regulation/oversight.. what about banks in high-corruption countries who still trade with ‘west’?
Are all electronic money traceable to some central bank/state who send it to the circulation?
In: Economics
Let’s say I pay you £100 and we’re at different banks.
What actually happens is my bank sends £100 from there account at the central bank to your banks account, along with a log saying which account it’s for and from.
The money at the central bank and in physical currency is the only currency in circulation.
The money in the accounts we have with commercial banks isn’t actually currency, it’s a list of assets and liabilities, so my account with £100 is my asset and my banks liability (if I tell them to send it to your bank they better have the currency in their account to do it).
If the bank decide to say on their own system they have an asset of £10,000,000,000 it doesn’t change anything (although probably breaks a lot of regulations), when someone tells them to send money they still only have what’s in their account at the central bank.
Latest Answers