The US fed does this too, they add a zero at the end of the existing account and create more money. Its all in a database no cash is being printed.
accounts["thehappypm"] += 1000
accounts["reserves"] += 1000
accounts["reserves"] -= 900
accounts["matheusmoreira"] += 900
accounts["thehappypm"] == 1000
accounts["matheusmoreira"] == 900
accounts["reserves"] == 100
That $900 is completely made up money. They just credited my account with that amount out of nowhere. I'm supposed to go out there and earn money to pay it back. If I do, all is well. If I default? The bank has its books showing they owe you $1000 but they only have $100 in reserve. The illusion is shattered the second you attempt to withdraw that money.
In the real world, it's not just you and me. It's banks leveraging their massive reserves on risky loans and investments that fail, thousands of customers noticing and attempting to withdraw everything they have all at the same time, getting nothing, leading them to default on their debts and so on and so on until the government literally manufactures even more money to bail out the banks by "injecting liquidity" into them and restoring their reserves, putting an end to the bank run at the cost of even more inflation.
So I decide to spend that $900 on a computer for software development in order to work remotely. I go to the store and buy one.
accounts["matheusmoreira"] -= 900
accounts["store"] += 900
accounts["reserves"] += 900
accounts["thehappypm"] == 1000
accounts["matheusmoreira"] == 0
accounts["store"] == 900
accounts["reserves"] == 1000
Not too long ago, Binance had restrictions on bitcoin withdrawals. Unverified accounts could only withdraw a small amount per day, verified accounts could withdraw a larger but still limited sum. Hmm...
The problem is banks operate in a state of perpetual insolvency. Their ability to pay off their debts to customers depends on the state of the larger economy. Too many defaults and the whole thing comes crashing down.
> At no point is cash conservation broken.
It never existed to begin with. All that's required for the illusion to disappear is for enough people to attempt to withdraw funds at the same time.
> I know that the bank has plenty of other peoples’ $900 that if I wanted that cash I could take it.
The bank has money until it doesn't.
https://en.wikipedia.org/wiki/Bank_run
> Many of the recessions in the United States were caused by banking panics
> The Great Depression contained several banking crises consisting of runs on multiple banks
> The global financial crisis that began in 2007 was centered around market-liquidity failures that were comparable to a bank run
https://en.wikipedia.org/wiki/Financial_crisis_of_2007–2008
> The International Monetary Fund estimated that large U.S. and European banks lost more than $1 trillion on toxic assets and from bad loans
> Lack of investor confidence in bank solvency and declines in credit availability led to plummeting stock and commodity prices
> The crisis rapidly spread into a global economic shock, resulting in several bank failures
> The de-leveraging of financial institutions, as assets were sold to pay back obligations that could not be refinanced in frozen credit markets, further accelerated the solvency crisis
> governments and central banks provided then-unprecedented trillions of dollars in bailouts and stimulus, including expansive fiscal policy and monetary policy to offset the decline in consumption and lending capacity, avoid a further collapse, encourage lending, restore faith in the integral commercial paper markets, avoid the risk of a deflationary spiral, and provide banks with enough funds to allow customers to make withdrawals
People complain about Tether but the whole banking system is just Tether on steroids.
With regulation, and audits, and insurance, and government guarantees that if something goes really wrong you will be made whole (as long as you don't deposit more than 7 years the median US income).
I also wouldn't deposit my money in an 1890's US bank.
This is what fuels exponential growth of nations. Banks keep conjuring up money out of thin air and loaning out to people so they can work and extract value out of this planet at unsustainable exponential rates. Humanity is addicted to it. The second these loans become unavailable for any reason, everything comes crashing down. The economy literally grinds to a halt.
Worst of all is these banks essentially dictate the direction future society will take. They choose who receives loans and who's left out in the cold. People like Larry Fink, CEO of BlackRock and manager of 10 trillion dollars. They decide things and then say "will you lead, or will you be led?"
The money is the numbers the banks report to you. Multiplying those numbers is inflating the money supply. Yes they might be required to hold some other assets than simply numbers in their databases to start the whole process, but they can still multiply money to some degree.
The bank does not have to do this everytime, Most of times it just creates a loan account and adds a number in the database and creates money out of thin air.
The Bank of England explained this in 2014. Surely the myth should have died by now.
[0]: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
> Fractional-reserve banking is the system of banking operating in almost all countries worldwide
> under which banks that take deposits from the public are required to hold a proportion of their deposit liabilities in liquid assets as a reserve, and are at liberty to lend the remainder to borrowers
Why not read the BoE report, and respond to that?
So borrower goes out and buys the stuff they need to make it happen. That money eventually ends up right back in the bank as a deposit. Once at the bank, it is once again loaned, spent, deposited, loaned, spent, deposited... Quickly inflating $1000 into a whole economic system worth huge figures like $100,000, not one cent of it real until all of the aforementioned economic activity actually succeeds in generating some real value. Always at risk of the whole stack unwinding due to business failures leading to defaults on loans which could cause even more defaults and liquidations and foreclosures and losses and all sorts of problems.
Multiplying that by an entire country's polulation results in truly mind-boggling amounts of money generation and therefore inflation. The actual money supply doesn't actually matter since it's a small fraction of the amount of money that's actually circulating.
The funniest part is cryptocurrency exchanges have turned into banks. They offer bitcoin lending services, savings accounts. Finite bitcoin supply? It doesn't matter. Value can always be inflated away through loans.