- FDIC Insurance. (some banks don't have it though especially if you are talking international banks).
- Regulation. Banks are regulated. They can freeze your money (randomly but not that randomly) but they are bound by laws. Most of the time they need to report their sheets and get audited by a central authority.
This information is available to the public about the USD supply as well: https://fred.stlouisfed.org/categories/24
> The information on how much banks are holding onto in fractional reserves should therefore be available and make cooking the books more difficult and allowing audits to be more accurate and hopefully regulations could exist to keep banks better in check.
You should look into just how much regulation there is in banking, and the history of banking itself. All publicly traded banks are audited yearly, and yes I am aware of Enron/Arthur Andersen and the GFC of 07/08, among others.
No system is infallible, but investors trust US audited company statements 100x more than chinese audited companies, for instance.
If trading is done off-chain, or transactions are made between currencies, those are not a part of the blockchain. For bitcoin-only transactions between wallets, no exchange is required.
It may also have to do with transfer taxes: it’s easier to say the payment was sent to an uninhabited island when the threshold is now IslandWithInternet instead of IslandsWithBankingSystems
As far as I can tell they are one and the same. In both cases you have an account balance that can be digitally transferred and the value of that balance completely depends on a trusted entity (a bank or the entity "backing" the digital currency).