First thing Wednesday morning and I've blown my own mind with confusion over how banks work.

I was thinking... I do work for American businesses. Usually, they pay by credit card to Google Checkout, who then pay money into my business account, which is then eventually transferred to my personal account. I was just wondering... where is the actual cash?

From end to end, there's no physical cash involved, and I can't work out what happens? Do the banks settle with each other at the end of the month or something? If so, does it actually involve taking a case full of cash to the other bank?

Sorry for a bit of a stupid question!

It's just numbers on a computer screen that change. Physical cash (coins and notes) represent a very small amount of the cash stock in any western country.

To all intents and purposes, physical cash is a manifestation of the numbers on the screen. Nothing of actual value ever changes hands, as cash as we know it has only a nominal physical value, and is rather a representation of a specific value whatever that may be.

In effect, all that happens is that numbers move from one account to another. There's no cash being held to the value of that transaction. The banks all have a pool of cash ready for when people wish to make a withdrawal, although it's no where near the amount actually in everyone's account. The banks don't have a box of cash that is yours specifically, it's just a box of cash that anyone can take, if they have enough numbers in their account.

Not sure I'm explaining this particularly well, does it help?

The actual amount of money is not the same as it looks on computer screen. So, you should be careful about that.

Thanks

It's easier if you realise that all banking is an enormous con mate tbh.

It works because the vast majority think like you did before you asked the question. They think that the actual cash is there, and when the accounting changes actual cash follows it at some point.

It's much easier if you realise that "accounts" don't exist in any meaningful way, apart from in people's imagination.

Your local natwest (for ex) Will have a pile of cash that changes depending upon what people come and physically add to it and take from it.

There is also the accounting taking place in the other systems at the same time. At the end of each day, the banks reconcile the two, but they really aren't linked to each other in any material way.

An interesting thing to do is ask your credit card company where and when they gave cash on your behalf.

Hope this helps!

The credit card game works as follows,

Banks or other organisations (even odd ones like charities - although indirectly via a bank as an intermediary) issue credit cards to consumers - some corporate, mostly joe public.
You buy something in a shop, say, and here the shop has a contract with a credit card acquirer. in the UK someone like NatWest streamline. Provided it is a genuine transaction - various checks are made - they pay the shop immediately, and a small fraction - couple of % is kept by Streamline. The shop is happy (they get the cash quickly).

The credit card companies - VISA, Mastercard, Amex then do the reconciliation between the two sides. The transactions are passed to the issuer of the card, and appear on your statement. Some banks both issue cards and receive transactions, but most just issue cards.

The money passes through the VISA, Mastercard or Amex in the money. It is all like a large circle, in which you connect on one side by paying and receiving goods, and the your payment then flows back, via your issuer, through the card scheme and then back via the acquirer to the merchant.

At least that is how it worked 13 years ago when I worked for a bank.

Again, like the other posters, the money transfer itself is just numbers on a computer.

Sorry about re-posting what I was trying to add to! Bit of a ****-up on the technology front as Reggie Perrin's friend Jimmy might say.

I was trying to post the following, nicked from the PricedOut forum (apologies to "bankenstein"):

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09/29/2007 4:38 AM Alert
To communicate the malign contribution of our debt-based money system to the twin predicaments of those currently priced out of the UK housing market, and of those now deeply indebted due to recent house purchases, here are a few questions.



I have taken the liberty of answering the first lead-in question. Take your time and ponder over the other questions. Their purpose is to promote awareness and enquiry.



1. Is it necessary for a complex modern society such as the UK to have a universal means of exchange? (Answer: Yes, of course, barter is no longer even remotely feasible.)


2. Given the choice, which of the following two possibilities would you prefer?

(a) A debt-based, privately issued means of exchange, borrowed into existence by, and lent at interest to, the community of users, namely UK society. Note that this option will ensure that an unavoidable, irredeemable and ever-increasing debt burden is loaded progressively onto present and future UK citizens, distributed between personal, corporate and government debts.

(b) A debt-free, permanently circulating means of exchange, responsibly and proportionately issued by HM Government at negligible cost to UK society.



3. If your answer to Q2 was (a), then why do you support a money system which guarantees that, on average, you will be more indebted than your parents, and that in turn your children will be more indebted than you? Why are you in favour of paying private, profit-making institutions for the very existence of your fundamentally necessary means of exchange?


4. Do you consider it rational that, collectively, we users of Sterling now have debts whose total is about £800,000,000,000 greater than the amount of Sterling in circulation? How has this state of affairs come about? Is it possible, even theoretically and let alone practically, for this debt ever to be repaid? Or must it increase inexorably until eventually there is a systemic breakdown of the monetary system?


5. Even now, UK society is finding it increasingly difficult to service the totality of its debt. If interest rates are increased, these difficulties will intensify. If rates are reduced, this will encourage further debt which, sooner or later, will be even harder to service. Faced with this dilemma, what do you think will happen over the next few years?


6. Why is the financial sector of the economy so disproportionately large and increasingly dominant? Why is the money supply and manipulation business so lucrative in comparison with, for example, agriculture or manufacturing industry? Why are so many of our most academically intelligent people employed in purely financial matters, essentially trying to outsmart us and each other without collectively producing any real wealth?


Answers and comments on a postcard please to your local MP, copies to Mervyn King and Alistair Darling.



To find out more about the above and related matters, I would recommend reading The Coming First World Debt Crisis by Ann Pettifor, published by Palgrave and available from Amazon.