Sensible question on this idea of banks inventing money ala The FED
e.g. - pick a UK bank , say Lloyds for instance
you get a loan of 10k from them
you then write a cheq for the 10k to buy a car
someone will present that cheq and 10k will be transferred
so something must be there for this to happen ?
when banks credit your account in this circumstance dont they have to transfer funds from reserves to your account ?
No. Your account doesn't contain funds, only booking entries. If the person you buy the car from deposits your cheque in his account, and it is with the same bank as yours, then no funds transfer takes place at all. Only an accounting entry to debit your account and credit his.
If he banks with a different bank, then there will (in due course) be a funds transfer from your bank to his.
exactly though - in the real world its bound to be a different bank
i can see the angle of the whole bigger picture but in that example some funds must be used
No. Your account doesn't contain funds, only booking entries. If the person you buy the car from deposits your cheque in his account, and it is with the same bank as yours, then no funds transfer takes place at all. Only an accounting entry to debit your account and credit his.
If he banks with a different bank, then there will (in due course) be a funds transfer from your bank to his.
Banks don't transfer funds for every piddling little customer transaction, rather they let debts between each other just mount up until they're big enough to do something about.
While you are buying a car from Mr X, Miss Y might be buying a world cruise from Z Ltd, and she might bank with X's bank, and Z with yours. Statistically it all evens out so that huge interbank transfers of real funds (as opposed to mere accounting data) happen much less than one might think.
And when they do, perhaps all that happens is that accounting entries at the Bank of England are adjusted.
relax m8 we're on the same page
i'm just thinking it thru rather than jumping to assumptions etc.
its sort of deep really
we need a top man at a bank to talk about this
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.