<p>You seem to have two questions: does the increase in electronic deposits (through banks making loans) create new cash and can all banks go bankerupt at the same time?</p>

<p>Your first question basically is the <a href="https://en.wikipedia.org/wiki/Money_multiplier#Loans_first_model" rel="nofollow noreferrer">"loans first model"</a> of money creation: loans drive the monetary base (think printed money in your wallet) instead of the monetary base driving new loans.</p>

<p>Banks are businesses just like any other. If they cannot provide enough financial services (e.g. make loans) to make up for their interest costs on deposits, then they will go bankrupt just like any other business. In theory, all banks could go bankerupt at the same time but by that point there will be far larger concerns.</p>

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2020-02-26T08:58:22.450Z
I think you have interpreted my concern but can you please elaborate this question: does the electronic deposit create new cash and can surpass the physical money?
Kishan Thacker
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2020-02-26T12:40:49.193Z
@KishanThacker Electronic deposits do not create cash. Only the central bank can create cash. (Electronic deposits *in the central bank* are equivalent to cash, because a bank can go to the central bank and withdraw their deposits. Electronic deposits in normal banks are not)
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2020-02-26T19:50:39.027Z
@KishanThacker In many countries, electronic deposits are a couple times larger than the amount of physical coins/bills and central banks end up printing more to match the demand driven by withdrawals of deposits (and to replace old coins/bills). Search M2 money supply vs M0 money supply for the country you're interested in.
Kent Shikama
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2020-02-27T11:16:41.340Z
@kent shikama I understand that every individual country may not have equal electronic money and physical money but if take all the banks around the world and add all the physical currency in the world at time 't' then will they will be equal?
Kishan Thacker
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2020-02-29T03:42:18.777Z
Almost certainly they will NOT be equal. My very rough guess is that there is around \$5 in electronic deposits of various kinds for every \$1 in bills/coins. Just add up the [money multiplier](https://en.wikipedia.org/wiki/Money_multiplier) for all the countries in the world.
Kent Shikama
CC BY-SA 4.0
2020-02-26T08:37:44.323Z
2020-02-26T08:37:44.323Z
Kent Shikama
<p>I am not an expert of economics so please give advise me if I have committed any mistake.
This question striked in my mind a few months ago, I tried to think on this question many times but I wasn't satisfied with the answers that I could think of, but again in one hypothetical case that I thought, virtual money increased the total money printed that case is as following: 
Assume that for 1 year no transactions are taking place in whole world. Now, whatever money that every bank account holder who have deposited any amount of money in their respective banks, the bank is liable to pay interest on that money, but as there were no transactions all around the world there was no income to the bank. Now if all the bank account holders around the globe go in their respective bank after a year and withdraw all the money from their account. Then, what will be the proceedings in this case, as the bank is liable to pay the interest + principal amount but as there was no investment or transaction the bank didn't earn anything. Does that mean the whole world is bankrupted?</p>

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2020-02-26T09:10:18.100Z
What do you think banks do with the money deposited in them?
410 gone
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2020-02-26T12:39:54.960Z
Where do you think interest comes from?
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<banking><financial-economics>
Is it possible that total virtual money i.e. total money in all bank account around the world can increase the total money produced by mankind?
Kishan Thacker
# Is it possible that total virtual money i.e. total money in all bank account around the world can increase the total money produced by mankind?

(Asked by: username_0 on 2020-02-26)

I am not an expert of economics so please give advise me if I have committed any mistake.
This question striked in my mind a few months ago, I tried to think on this question many times but I wasn't satisfied with the answers that I could think of, but again in one hypothetical case that I thought, virtual money increased the total money printed that case is as following:
Assume that for 1 year no transactions are taking place in whole world. Now, whatever money that every bank account holder who have deposited any amount of money in their respective banks, the bank is liable to pay interest on that money, but as there were no transactions all around the world there was no income to the bank. Now if all the bank account holders around the globe go in their respective bank after a year and withdraw all the money from their account. Then, what will be the proceedings in this case, as the bank is liable to pay the interest + principal amount but as there was no investment or transaction the bank didn't earn anything. Does that mean the whole world is bankrupted?

**Tags:** banking, financial-economics
> **Comments:**
> **username_1**: What do you think banks do with the money deposited in them?  
> **username_2**: Where do you think interest comes from?  

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## 1 answers

### Answer by username_3 on 2020-02-26. Score: 1

You seem to have two questions: does the increase in electronic deposits (through banks making loans) create new cash and can all banks go bankerupt at the same time?

Your first question basically is the ["loans first model"](https://en.wikipedia.org/wiki/Money_multiplier#Loans_first_model) of money creation: loans drive the monetary base (think printed money in your wallet) instead of the monetary base driving new loans.

Banks are businesses just like any other. If they cannot provide enough financial services (e.g. make loans) to make up for their interest costs on deposits, then they will go bankrupt just like any other business. In theory, all banks could go bankerupt at the same time but by that point there will be far larger concerns.

> **Comments:**
> **username_0**: I think you have interpreted my concern but can you please elaborate this question: does the electronic deposit create new cash and can surpass the physical money?  
> **username_2**: @KishanThacker Electronic deposits do not create cash. Only the central bank can create cash. (Electronic deposits *in the central bank* are equivalent to cash, because a bank can go to the central bank and withdraw their deposits. Electronic deposits in normal banks are not)  
> **username_3**: @KishanThacker In many countries, electronic deposits are a couple times larger than the amount of physical coins/bills and central banks end up printing more to match the demand driven by withdrawals of deposits (and to replace old coins/bills). Search M2 money supply vs M0 money supply for the country you're interested in.  
> **username_0**: @kent shikama I understand that every individual country may not have equal electronic money and physical money but if take all the banks around the world and add all the physical currency in the world at time 't' then will they will be equal?  
> **username_3**: Almost certainly they will NOT be equal. My very rough guess is that there is around \$5 in electronic deposits of various kinds for every \$1 in bills/coins. Just add up the [money multiplier](https://en.wikipedia.org/wiki/Money_multiplier) for all the countries in the world.  

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