Andrew Jackson - Where Does Money Come From - Positive Money pdf from epub

4.6.

Is commercial bank money as good as central bank money?

Let us revisit briefly the popular conception of banking as a safe-deposit box that we set out in Chapter 1.

If you had ÂŁ500 in your bank account, it might be logical to assume that the bank must have ÂŁ500 in central bank money, ring-fenced for you and ready to use. But this is not the case. As the customer of a bank, you do not have access to any central bank money, any more than there is a bundle of cash with your name on it lying in the vaults. For your ÂŁ500, as we have seen, the bank will only hold a small proportion of central bank reserves. Like goldsmiths before them, banks know that at any one time not many customers are likely to demand all of their money in cash. The banks also know that within the closed loop of the Real Time Gross Settlement (RTGS), see Box 9, as well as payments and central bank reserves leaving them, a similar volume will be coming back to them.