When money created in the money creation cycle is spent it is usually transferred directly between loan or savings accounts as fund transfers rather than by moving true cash around. When money is transferred this way, the balance of the various accounts is simply increased or reduced as required as the imaginary "cash" is transferred between them, and the total amount of money in the bank remains the same.

The process of transferring funds without using cash works even when the loan or savings accounts are held by different banks because the banks all agree that the loans (the promises to repay) that other banks hold are valid and will be enforced, and so accept the transfers from loan accounts that other banks hold; the process looks like this:

When Mike sells goods to Anne, and Anne pays using a transfer, the bank increases the balance of Mike's account by the price of the goods. Anne's account is at another bank, which reduces the balance of her account by the price of the goods.

Jack's account is at the same bank as Anne's account. When Jack sells goods to Jane, and Jane pays using a transfer, that bank increases the balance of Jack's account by the price of the goods.

Jane's account is at the same bank as Mike's account. When she buys the goods from Jack, and pays using a transfer, the bank reduces the balance of her account by the price of the goods.

If the value of the goods in both transactions is the same, then the bank that holds Jane and Mike's accounts will increase the balance of Mike's account and reduce the balance of Jane's account by that amount, with no overall change to the amount of money that the bank holds.

The other bank, that holds Anne and Jack's accounts, will increase the balance of Jack's account and reduce the balance of Anne's account by the amount of the transactions, with no overall change to the amount of money that it holds. Again, no actual cash has to be moved and the total balance at each bank hasn't changed.

Of course, in practice, transactions aren't so neat and simple; however, all of the transactions between all of the accounts of all of the banks tend to balance out, and very little imbalance between the banks remains. At the end of every working day the banks even out any imbalance between each other by lending each other the necessary money in inter-bank loans.

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Spending money created from nothing

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