“There’s this wild disconnect between what people are experiencing and what economists are experiencing,” says Nikki Cimino, a recruiter in Denver.
“There’s this wild disconnect between what people are experiencing and what economists are experiencing,” says Nikki Cimino, a recruiter in Denver.
Digital account keeping has been a thing since the 1950’s. And doing it on a computer didn’t change that all banks lent out more than they had. It’s the premise of the movie It’s a Wonderful Life. Bank runs were a thing for as long as banks have existed.
There’s a lot more to it than just that (such as, how do banks settle interbank transfers or even things like how the end of the gold standard paved the way for it) but I didn’t want to complicate the explanation with too much details, though the main difference is the widespread use of digital transfers, especially by consumers which actually dates back a bit further than the 90s but definitelly not all the way to the 50s.
If you really want to know it in depth, I recommend you read the paper I pointed which is here. (By the way, I got the name slightly wrong: it’s “Money creation in the modern economy”)
Digital transfers are not necessary for banks to loan money. As your link says, it’s the loan, which gives money to a business or consumer that the bank doesn’t physically have, that creates money.
Electronic fund transfers and ATM’s started in the 1960’s. Nasdaq the first completely computerized exchange (no people involved) started in 1971.
Digital transfers are now the dominat way for money to be exchanged in trades, replacing mainly cash, i.e. the coins and currency that can only be made by the Mint.
The less people use cash to pay, the less the cash withdrawls from the banks, the less the banks need to procure cash - in a world world were payments are almost all done via payment orders, typically digital, the banks only need to procure cash for periodic settlement of the differences in payments between them: for example, if person 1 does an electronic transfer of $1000 from their account in bank A to person 2’s account in bank B and person 3 does an electronic transfer of $900 from his account in bank B to person 4’s account in bank A, all that bank A has to procure to settle the difference is $100 and bank B nothing at all, even though $1900 changed hands between various otherwise unrelated parties. If they were cash transfers, bank A would have to get $1000 in notes and coins from the mint (to give to person 1) and bank B would have to get $900 (to give to person 3). Now imagine this times hundreds of thousands fold of transactions a day and you can see how much money can change hands without the banks having to get the actual coins and notes (or treasuries and so on: the stuff they can’t produce) that ultimatelly would come from the government.
This is also possible with cheques, but it was the widespread use of electronic transfers, namelly electronic payment methods, that really reduced the need for banks to procure actual money tokens that they can’t legally make themselves, such as cash.
It wasn’t the invention of electronic transfers that made this happen (as I said, cheques also enable a similar thing), it was its widespread use - replacing most cash transactions out there - that made this mechanism become dominant over the traditional one were banks needed to get cash in as deposits so that they could give cash out as withdrawals that then were used by people and businesses for payments and came back on the other side as deposits.
Without such a high need to provide cash to their customers, banks can have a much higher percentage of IOUs (in the form of mere numbers in computers) to cash than before only requiring cash (and ither such forms of money such a treasury certificates) for the periodic settlement of the pending differences between banks of inflows minus outflows, ad per my example above.
People don’t venmo at grocery store checkout. It’s all credit cards. The credit card craze started in the 60’s which unsurprisingly coincided with banks switching to eft’s.
Credit cards are electronic payments, hence why they had magstrips and later smartchips. Also how long ago did they replace most cash transactions depends on the country - in plenty of even Western nations card payments were pretty rare even it the 90s.
Thwt said your point that fhe transation to said “modern” economy has been going on for longer than merely “since the 90s” does make sense.