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
When you transfer money between banks the two banks will both keep track of how much they owe each other bank and how much they are owed. There are various systems that the banks have implemented to clear out these debts over time. But at some point it may be necisary to transfer funds between banks. Most legislation still require the banks to settle their debts with gold but this is like paying for your house with cash, both parties hate it. So the banks will often settle their debts with government bonds instead as it is much easier to transfer then gold.
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