[macintologist]

It makes you wonder, what happens when someone deposits a check of mine for 100 dollars. No cash is involved.

The computers at my bank subtract 100 from my account, and the computers from the recipients bank add 100 to his/her account.

Is that it? Is there no real money being exchanged between banks when customers send "money" to one another?

[Dork.]

Yup, it's all electricaltronically magic. They don't even need to mail the actual paper check anymore.

Sorry to post and run, these might help:

Automated Clearing House - Wikipedia, the free encyclopedia

Federal Reserve System - Wikipedia, the free encyclopedia

Check 21 Act - Wikipedia, the free encyclopedia

[ort888]

A series of tubes.

[reader50]

They do transfer paper money between banks sometimes in those Brinks trucks. With all that heavy armor, the mileage must be terrible.

[MindFad]

Originally Posted by ort888 

A series of tubes.

[Big Mac]

Originally Posted by macintologist 

It makes you wonder, what happens when someone deposits a check of mine for 100 dollars. No cash is involved.

The computers at my bank subtract 100 from my account, and the computers from the recipients bank add 100 to his/her account.

Is that it? Is there no real money being exchanged between banks when customers send "money" to one another?

Cash is a very small part of our money supply. Most money moves around in electronic form. And at any given time, individual banks only hold a fraction of the money they're in control of - it's called the fractional banking system.

[macintologist]

Originally Posted by Big Mac 

Cash is a very small part of our money supply. Most money moves around in electronic form. And at any given time, individual banks only hold a fraction of the money they're in control of - it's called the fractional banking system.

So if my bank were to magically put a +10000 on my bank account, then I would be $10,000 dollars richer and that's it? How can they just create money out of thin air like that?

[rickey939]

PayPal.

[Dakarʒ]

Well they'd have to say it came from somewhere.

[Big Mac]

Originally Posted by macintologist 

So if my bank were to magically put a +10000 on my bank account, then I would be $10,000 dollars richer and that's it? How can they just create money out of thin air like that?

Yes, that is exactly how it works. Banks create money out of thin air. They're called loans. (Of course, you do have to pay them back.) I was going to bring that up in my previous post but decided it was slightly outside the scope of your original question.

[olePigeon]

Originally Posted by macintologist 

So if my bank were to magically put a +10000 on my bank account, then I would be $10,000 dollars richer and that's it? How can they just create money out of thin air like that?

Banks are usually started by a bunch of rich people (or companies) who all invest their own money into it. Most private banks "magically" make money from high interest loans to the Government.

[Dork.]

Originally Posted by macintologist 

So if my bank were to magically put a +10000 on my bank account, then I would be $10,000 dollars richer and that's it? How can they just create money out of thin air like that?

Not quite. Every financial transaction consists of "gozintas" and "gozzattas". If money goes into your account, it has to go out of some other account. Accountants go to great lengths to ensure the gozintas and gozzatas balance out.

[Jawbone54]

Pigeons.

[iMOTOR]

I really don't know the details of inter bank transactions, but I would imagine that most of the money ends up going back and forth.

For example, someone at WAMU pays $150 to a retailer who has a merchant checking account with Wells Fargo, but three Wells Fargo customers each write $50 checks to WAMU customers, so it's a wash. Only book accounting takes place, nothing tangible like cash is actually traded.

Then I would imagine, for any amount that is not a wash, for example one bank owes another bank $1000 but is only owed $950 lets say, then that bank would need to deliver the remaining $50 in legal tender to the other bank.

I'm just guessing though, I really don't know exactly how it works.

[OldManMac]

Very little paper money moves around anymore, other than what we carry in our wallets and purses, and what retailers use. That doesn't mean that there isn't a lot of money in circulation, with a population of 300 million. The majority, however, is electronic transactions, and it's built on trust, which is why white collar criminals are generally more successful, with larger dollar amounts, than blue collar criminals.

[Kerrigan]

Originally Posted by Big Mac 

Yes, that is exactly how it works. Banks create money out of thin air. They're called loans. (Of course, you do have to pay them back.) I was going to bring that up in my previous post but decided it was slightly outside the scope of your original question.

Yes Big Mac is right. Banks create money which previously did not exist, by issuing loans. Bank to bank transfers, through checks, tend to be handled by the fed, which shifts around cash deposits. The $$$ in your checking account is simply a series of digits in an accounting system.

[Sijmen]

There are no banks. There is only ONE!

[Big Mac]

Originally Posted by iMOTOR 

Then I would imagine, for any amount that is not a wash, for example one bank owes another bank $1000 but is only owed $950 lets say, then that bank would need to deliver the remaining $50 in legal tender to the other bank.

Legal tender as in paper money being shuffled around for the purpose of handling common checks? No, not unless the check or transfer is for a huge amount. Checks get processed and funds are withdrawn from the check writer's bank to be deposited into the bank of the recipient, electronically. Banks do need to keep minimum levels of capital on hand to cover regular transactions. Sometimes banks need to get loans from other banks in order to cover their fractional reserve requirements; in rare circumstances they borrow from the Fed to cover shortfalls.

Read more about Fractional-reserve banking (Wikipedia).