[HPsquared]

There are a lot more bank deposits than green paper.

It's similar to how banknotes originally were 1:1 correlated with physical gold (or whatever) in the vault, then banks realized they could lend out more notes than they have gold in the vault.

Very similar situation with electronic vs paper dollars.

Most bank deposits are created out of thin air by commercial banks when they make loans. There isn't enough paper money to cover all those deposits.

https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

[HervalFreire]

>There are a lot more bank deposits than green paper.

That's what I am saying am I not? The bank makes a business claim that they can redeem ALL of the green paper back to everyone at the same time.

But I said it's a lie. It's illusion.

>Most bank deposits are created out of thin air by commercial banks when they make loans. There isn't enough paper money to cover all those deposits.

woosh.

[dredmorbius]

Depositors can be made whole without receiving little green pieces of paper.

Checks, account transfers, wire transfers, etc.

There is no fundamental limit on the Federal Reserve to create (or destroy) money as needed. The Fed, as other central banks, does however exercise that power very judiciously, and with specific targets (inflation, unemployment) as its foundational charter.

Note that both inflation and unemployment are not assessed by the Fed, but by an independent federal department, Labour. It's a classic instance of not giving a single entity control over both the means of control and the measurement of success.

[HervalFreire]

> Depositors can be made whole without receiving little green pieces of paper.

However, in principal The bank promises redeemable cash, that's why people stay in banks. But it's a lie. Again bank runs exist because of this lie.

Everybody knows the Fed screws it all up. A wire transfer among competing banks would make the competing bank demand that the other bank redeem the transfer in green paper money.

However, because the Fed is the bank of banks, it just becomes number a change on the balance sheet of the fed.

[dredmorbius]

What is your evidence or basis for claiming that banks settle transactions in physical Federal Reserve Notes?

Because whatever it is, it's a figment of your, or someone else's, imagination. Bank settlements typically occur via SWIFT: <https://en.wikipedia.org/wiki/SWIFT> <https://www.investopedia.com/articles/personal-finance/05051...>

The preferred form of a large-denomination withdrawal from a bank will either be a chashier's check or a wire transfer in virtually all cases.

[lukas099]

> The bank makes a business claim that they can redeem ALL of the green paper back to everyone at the same time.

They never claimed this. Everyone has known about bank runs, fractional reserve banking, etc. for a long time.

[HervalFreire]

People know about it.

But in principle the bank is suppose have cash redeemable.

Would you ever put money in a bank that you know for a fact will never be able to redeem your money ever??