When you transfer money from one bank to another, are they just moving virtual bits around? Is anything backing those transfers? What prevents banks from just fudging the bits and “creating” money?

Question

When you transfer money from one bank to another, are they just moving virtual bits around? Is anything backing those transfers? What prevents banks from just fudging the bits and “creating” money?

In: 1559

Answer 1

Nothing. Literally nothing. You just explained banks. They are giving you virtual money that they promise to provide when challenged.

However they don’t have all the cash on hand to supply all their “so called money”

Quite simply, they make money out of nothing. That’s it. They just promise that it’s good!

Fun fact the federal reserve does the same thing with gold now that we don’t have a gold standard