What real money is

Money may be created by transferring it from a loan account to a savings account, which also creates a debt in the loan account.  


You may feel that the balance in a savings account isn't real money until you have withdrawn it as banknotes and coins, but this isn't so by any modern understanding of money.


If you think about it, you will realise that almost none of your money ever exists as banknotes and coins. When you get paid your pay is probably transferred directly into your bank account; when you spend your pay you use EFTPOS or a credit card to transfer it into someone else's account, or you transfer it using BPAY or direct deposit to pay your bills from it. The amount of money that you actually withdraw as cash (banknotes and coins) is probably very small, just for buying minor items.


If you need any more proof that the money transferred from a loan account to a saving account is real, you can get it from the fact that the bank in this example is now charging interest on the loan!


This page is referenced from:

creating money by borrowing it

spending money created by borrowing


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