<p>My guess is that sometimes any value of money in a bank is tied with the physical representation of that value. Although fiat money is not tied with any form of minerals (gold or silver), but it is tied with some form of paper money. If banks just adding zero to its bank account without any tangible representation of that value, people in the future, when they are about to draw physical cash, the bank will not provide that cash. This can cause much trouble for the banks itself. This is why when the Feds want to "pump" money into the money supply, they print money and buy treasury bonds, instead of just "adding zero" to the back of its bank account. Since Greece cannot just print money at their own will, adding zero to their currency will cause much problem. In the case of the debt crisis now, imagine if they DID add zero and people are drawing their cash. Their books says that they still have money but the banks cannot provide the cash that people demanded. Another proposal is to just print money. Greece cannot do this and if a country can, it can cause a rapid inflation, another economic problem that can backfire...</p>

CC BY-SA 3.0
2015-07-09T17:39:04.053Z
2015-07-09T17:39:04.053Z
ExtremelySeriousChicken
<p>Nothing.</p>

<p>In essence that's exactly how banking works nowadays, see <a href="https://en.wikipedia.org/wiki/Fractional-reserve_banking" rel="nofollow">Fractional Reserve Banking</a>. </p>

<p>Furthermore, it's perfectly legal.</p>

<p>It works because people rarely ever want to withdraw all the money they have in cash. Instead, they are happy to just check their bank account balance and keep the cash secure in bank.</p>

<p>Obviously there are limits and even Fractional Reserve Banking can't go on for ever but, in essence, majority of money supplies gets created by shuffling account balances. It does not even have to zeros and ones as you can do the same on paper.</p>

<p>Banks do not go bankrupt because they have team of statisticians at hand that calculates how much cash should they have at any time to maintain liquidity.</p>

<h2>Update</h2>

<p>Regarding Greece. Since <a href="https://en.wikipedia.org/wiki/Nixon_Shock" rel="nofollow">Nixon Shock</a>, any country can create endless supplies of money at no cost but only if that country did not deprive itself from that right by joining currency union as Greece did.
Once Greece quits the Euro zone, they will regain the power to create money supplies.</p>

CC BY-SA 3.0
2015-07-09T18:06:37.483Z
negative voter - speak up!
matcheek
CC BY-SA 3.0
2015-07-09T20:46:52.780Z
Fractional reserve banking is so badly understood.
Lumi
CC BY-SA 3.0
2015-07-09T21:15:26.803Z
When banks create loans, they're also creating a liability for themself.
dwjohnston
CC BY-SA 3.0
2015-07-09T22:49:54.600Z
@Lumi which part of the answer do you disagree with?
matcheek
CC BY-SA 3.0
2015-07-09T23:10:48.080Z
Let's see - you're referencing the FRB wikipedia page which is still using the now acknowledged incorrect textbook description, you're also claiming that it is possible to just arbitrarily add 0's - it's not - and banks actually go bankrupt all the time, see FDIC Fridays.  Liquidity provision doesn't require much in the way of statistics btw., banks have a very good idea of how much asset cash they will have flowing just by looking at their loan book. There are also considerable costs to printing endless supplies of money, just ask Weimar Germany, Zimbabwe, and lately Russia and the Ukraine.
Lumi
CC BY-SA 3.0
2015-07-09T23:26:27.140Z
@FooBar The answer is correct in technical sense but lacks basic analysis - the monetary system we use today is based on faith exclusively.  Human work, thus goods ans services have value, not money which can be created endlessly. While I am grateful for pointing me to this answer, upon seeing that it lacks basic understanding of monetary system, I have no other way than encourage you to research the subject  assuming many different axioms thus avoiding dogmatism which is so common.
matcheek
CC BY-SA 3.0
2015-07-09T23:48:59.483Z
@Lumi Yes, banks can arbitrarily create entries in accounts books. To some extent State can control banks but regular as sine wave financial crises leave no doubt that FRB is beyond State's control. If you believe that a wikipedia page, textbook, academic paper or even State can control how banks put FRB to work, that is, how big is the risk that bank are taking, then I encourage you to read just about the recent 2008 financial crisis' takeovers. Say about nationalization of Royal Bank of Scotland whose majority shareholder is now UK Government.
matcheek
CC BY-SA 3.0
2015-07-09T23:49:24.393Z
@Lumi For State to control the risk that bank are taking it would mean to scrutinize every single transaction. And it's legal for bank to take risk because they claim that despite taxpayers backed Deposit Guarantee Scheme, they are private sector.
matcheek
CC BY-SA 3.0
2015-07-10T00:01:27.240Z
@matcheek Could you provide evidence for this claim that banks can arbitrarily create entries in their books without this being classed as fraudulent? You are looking in the wrong place for the abuses of this system - I would recommend you dig into loan securitization if you want to understand the roots of the 2008 crisis in the UK and elsewhere.
Lumi
CC BY-SA 3.0
2015-07-10T00:30:38.440Z
@Lumi The immediate cause or trigger of the crisis was the bursting of U.S. (United States) housing bubble, which peaked in 2004 [Wiki](https://goo.gl/iUAKIa) If you think the roots of 2008 crisis have been incorrectly identified please correct it.

FRB is not classified as fraud as far as I can tell, yet the very basis of FRB is just about arbitrarily (to some extent) creating entries in the books. That's the way it is without getting involved in the intricacies of FRB.
matcheek
CC BY-SA 3.0
2015-07-10T00:32:10.000Z
@matcheek - And what caused the bubble? There is nothing arbitrary about double entry book keeping - quite the contrary, why are you claiming that there is?
Lumi
CC BY-SA 3.0
2015-07-10T00:55:52.253Z
@Lumi Correct me if I am wrong. The very foundation of FRB is that people believe that they can withdraw cash at any point because that's what their bank account balance shows them, yet if all of them wanted to withdraw the assets tomorrow only a small percentage of them would succeed by the very definition of FRB.  So if bank goes full FRB and keeps, say, 5% from every deposit we get money multiplier of rank 20. That's what I mean by arbitrarily created entries.
matcheek
CC BY-SA 3.0
2015-07-10T01:00:52.790Z
@matcheek - So when was the last time you paid your rent in cash? Apropos the mechanics - the bank doesn't keep 5% from each deposit. It has some amount of asset cash. Depending on the country it is in, it is required to maintain deposits as a multiple of that amount. In the UK, for example, the reserve requirement is 0%, on the mainland it is either 1 or 2%. In a similar way it is also required to have a capital buffer, which is a fraction of its loan book - the Basel capital requirement. None of this is arbitrary, and banks are audited regularly to ensure they are within their limits.
Lumi
CC BY-SA 3.0
2015-07-10T01:17:02.093Z
@Lumi So when was the last time you were told by your bank that you will be allowed to withdraw cash only if more than ~95%  deposits are not called?? FRB by definition is about arbitrarily taking risk. If you can't see that let's agree to disagree. Also, I should applaud you for having a sense of humour - the sentence _banks are audited regularly to ensure they are within their limits_  by Lumi should be printed on the cover of every report on financial crisis 2008.
matcheek
CC BY-SA 3.0
2015-07-10T01:44:46.210Z
@Matcheek And if you have a look at those reports, you will find that they were. As I keep saying, you appear to be deliberately  looking in the wrong place for the very real problems with this system. So I hope they're paying you... btw. not to worry you or anything, but the technology providing your internet connection is also based on statistical multiplexing. Don't forget to rail against the fraudulent ISP's for not letting everybody max out their connection simultaneously.
Lumi
CC BY-SA 3.0
2015-07-10T07:30:02.310Z
Let us [continue this discussion in chat](http://chat.stackexchange.com/rooms/25691/discussion-between-matcheek-and-lumi).
matcheek
CC BY-SA 3.0
2015-07-09T17:52:25.707Z
2015-07-09T18:03:21.323Z
2015-07-09T18:03:21.323Z
matcheek
<p>Double entry book keeping.</p>

<p>If we take the example given here, of the Greek Central Bank (bank nerd trivia - interestingly the GCB is a commercial bank, listed on the Greek Stock Exchange), arbitrarily adding 000's to its deposit account.</p>

<p>This cannot be done as stated. The double entry book keeping accounting system on which all banking is based, requires that two ledgers are simultaneously updated, one with a credit and one with a debit. So if the GCB credits its own deposit account (which in practice would be a liability income account of some kind), there has to be a matching debit on another ledger. Those are the rules.</p>

<p>Typically deposit accounts increase their value either by people depositing cash in them (see below), by direct transfer from another deposit account, or by receiving a loan.</p>

<p>For example, if the government prints physical cash then this can be deposited at the central bank:</p>

<pre><code>[debit cash account, credit GCB bank deposit account]
</code></pre>

<p>and this is how the US TARP intervention was performed. The federal reserve then used the money to buy loans from the US Banks. Note that a debit to an asset account increases its value, and a credit reduces it, whilst on the liability (right hand side), a debit reduces the account, and a credit increases it.</p>

<p>If the European central bank makes the Greek Central bank a loan then on the Greek side, the book keeping is:</p>

<pre><code>[debit cash, credit interbank loan]
</code></pre>

<p>The GCB has received cash, and now has a debt that it owes the ECB among its liabilities.</p>

<p>The one thing it can't do is just arbitrarily increase the value of a single account, one of the main reasons for double entry book keeping is in fact to prevent that. </p>

<p>Bank fraud and the various forms of banking system abuse that do occur typically involve manipulations of banking operations within the framework of double entry book keeping. So while DEB. prevents accounts from having zero's tacked on the end, it doesn't prevent Mr. Smith the bank manager, lending his very good friend Mr. Brown a large sum of money that Mr. Brown has no intention of repaying. </p>

CC BY-SA 3.0
2015-07-09T21:04:13.570Z
2015-07-09T21:20:43.883Z
2015-07-09T21:20:43.883Z
Lumi
<p>This question has been bothering me for a long time and I’m hoping that someone here can help to answer it.</p>

<p>I will use Greece as an example, but my question could really be applied to any country or even a bank:</p>

<p>While a government in the Eurozone, the Greeks for example, might have an actual building in which Euro coins are minted and Euro banknotes printed, these are most likely tightly regulated, with lots of physical checks to ensure that the Greek government doesn’t just print more whenever they want to.</p>

<p>I understand that physical money typically makes up a small portion of the actual money supply, so I assume that “printing them selves out of debt” regardless of whether it would be legal, isn’t an actual option for them.</p>

<p>However, what prevents the Greek national bank from simply going into their computer system and adding some zeros to their bank account? What system prevents any bank anywhere from doing the same? Does the bank of international settlements in Basel keep some kind of record of the total global money supply? How is this kind of fraud prevented?</p>

<p>I’m very curious to hear the answer!</p>

CC BY-SA 3.0
2015-07-09T16:24:23.163Z
It is really interesting how we never heard this type of question (despite the Greek crises being really present since creation of the beta), and now suddenly we have two within 2 weeks.
FooBar
CC BY-SA 3.0
2015-07-10T06:40:34.217Z
The answer that fully explains (to me at least) my question is indeed the one that was pointed to as the "duplicate". Many thanks to everyone for shedding light on this!
rohrl77
CC BY-SA 3.0
2015-07-10T06:41:56.550Z
I'll take Lumi's answer as the correct one for my question. So that leaves me wondering about just one thing... what does the bank of international settlements do?... guess I can research that question myself a bit.
rohrl77
<money-supply><central-banking><money>
What prevents a bank from simply going into their computer system and adding some zeros to their bank account?
rohrl77
# What prevents a bank from simply going into their computer system and adding some zeros to their bank account?

(Asked by: username_0 on 2015-07-09)

This question has been bothering me for a long time and I’m hoping that someone here can help to answer it.

I will use Greece as an example, but my question could really be applied to any country or even a bank:

While a government in the Eurozone, the Greeks for example, might have an actual building in which Euro coins are minted and Euro banknotes printed, these are most likely tightly regulated, with lots of physical checks to ensure that the Greek government doesn’t just print more whenever they want to.

I understand that physical money typically makes up a small portion of the actual money supply, so I assume that “printing them selves out of debt” regardless of whether it would be legal, isn’t an actual option for them.

However, what prevents the Greek national bank from simply going into their computer system and adding some zeros to their bank account? What system prevents any bank anywhere from doing the same? Does the bank of international settlements in Basel keep some kind of record of the total global money supply? How is this kind of fraud prevented?

I’m very curious to hear the answer!

**Tags:** money-supply, central-banking, money
> **Comments:**
> **username_1**: It is really interesting how we never heard this type of question (despite the Greek crises being really present since creation of the beta), and now suddenly we have two within 2 weeks.  
> **username_0**: The answer that fully explains (to me at least) my question is indeed the one that was pointed to as the "duplicate". Many thanks to everyone for shedding light on this!  
> **username_0**: I'll take Lumi's answer as the correct one for my question. So that leaves me wondering about just one thing... what does the bank of international settlements do?... guess I can research that question myself a bit.  

---

## 3 answers

### Answer by username_4 on 2015-07-09. Score: 6 | Accepted answer

Double entry book keeping.
If we take the example given here, of the Greek Central Bank (bank nerd trivia - interestingly the GCB is a commercial bank, listed on the Greek Stock Exchange), arbitrarily adding 000's to its deposit account.
This cannot be done as stated. The double entry book keeping accounting system on which all banking is based, requires that two ledgers are simultaneously updated, one with a credit and one with a debit. So if the GCB credits its own deposit account (which in practice would be a liability income account of some kind), there has to be a matching debit on another ledger. Those are the rules.
Typically deposit accounts increase their value either by people depositing cash in them (see below), by direct transfer from another deposit account, or by receiving a loan.
For example, if the government prints physical cash then this can be deposited at the central bank:
[debit cash account, credit GCB bank deposit account]

and this is how the US TARP intervention was performed. The federal reserve then used the money to buy loans from the US Banks. Note that a debit to an asset account increases its value, and a credit reduces it, whilst on the liability (right hand side), a debit reduces the account, and a credit increases it.
If the European central bank makes the Greek Central bank a loan then on the Greek side, the book keeping is:
[debit cash, credit interbank loan]

The GCB has received cash, and now has a debt that it owes the ECB among its liabilities.
The one thing it can't do is just arbitrarily increase the value of a single account, one of the main reasons for double entry book keeping is in fact to prevent that. 
Bank fraud and the various forms of banking system abuse that do occur typically involve manipulations of banking operations within the framework of double entry book keeping. So while DEB. prevents accounts from having zero's tacked on the end, it doesn't prevent Mr. Smith the bank manager, lending his very good friend Mr. Brown a large sum of money that Mr. Brown has no intention of repaying.


---

### Answer by username_2 on 2015-07-09. Score: -4

My guess is that sometimes any value of money in a bank is tied with the physical representation of that value. Although fiat money is not tied with any form of minerals (gold or silver), but it is tied with some form of paper money. If banks just adding zero to its bank account without any tangible representation of that value, people in the future, when they are about to draw physical cash, the bank will not provide that cash. This can cause much trouble for the banks itself. This is why when the Feds want to "pump" money into the money supply, they print money and buy treasury bonds, instead of just "adding zero" to the back of its bank account. Since Greece cannot just print money at their own will, adding zero to their currency will cause much problem. In the case of the debt crisis now, imagine if they DID add zero and people are drawing their cash. Their books says that they still have money but the banks cannot provide the cash that people demanded. Another proposal is to just print money. Greece cannot do this and if a country can, it can cause a rapid inflation, another economic problem that can backfire...


---

### Answer by username_3 on 2015-07-09. Score: -5

Nothing.

In essence that's exactly how banking works nowadays, see [Fractional Reserve Banking](https://en.wikipedia.org/wiki/Fractional-reserve_banking).

Furthermore, it's perfectly legal.

It works because people rarely ever want to withdraw all the money they have in cash. Instead, they are happy to just check their bank account balance and keep the cash secure in bank.

Obviously there are limits and even Fractional Reserve Banking can't go on for ever but, in essence, majority of money supplies gets created by shuffling account balances. It does not even have to zeros and ones as you can do the same on paper.

Banks do not go bankrupt because they have team of statisticians at hand that calculates how much cash should they have at any time to maintain liquidity.

## Update

Regarding Greece. Since [Nixon Shock](https://en.wikipedia.org/wiki/Nixon_Shock), any country can create endless supplies of money at no cost but only if that country did not deprive itself from that right by joining currency union as Greece did.
Once Greece quits the Euro zone, they will regain the power to create money supplies.

> **Comments:**
> **username_3**: negative voter - speak up!  
> **username_4**: Fractional reserve banking is so badly understood.  
> **username_5**: When banks create loans, they're also creating a liability for themself.  
> **username_3**: @Lumi which part of the answer do you disagree with?  
> **username_4**: Let's see - you're referencing the FRB wikipedia page which is still using the now acknowledged incorrect textbook description, you're also claiming that it is possible to just arbitrarily add 0's - it's not - and banks actually go bankrupt all the time, see FDIC Fridays.  Liquidity provision doesn't require much in the way of statistics btw., banks have a very good idea of how much asset cash they will have flowing just by looking at their loan book. There are also considerable costs to printing endless supplies of money, just ask Weimar Germany, Zimbabwe, and lately Russia and the Ukraine.  
> **username_3**: @FooBar The answer is correct in technical sense but lacks basic analysis - the monetary system we use today is based on faith exclusively.  Human work, thus goods ans services have value, not money which can be created endlessly. While I am grateful for pointing me to this answer, upon seeing that it lacks basic understanding of monetary system, I have no other way than encourage you to research the subject  assuming many different axioms thus avoiding dogmatism which is so common.  
> **username_3**: @Lumi Yes, banks can arbitrarily create entries in accounts books. To some extent State can control banks but regular as sine wave financial crises leave no doubt that FRB is beyond State's control. If you believe that a wikipedia page, textbook, academic paper or even State can control how banks put FRB to work, that is, how big is the risk that bank are taking, then I encourage you to read just about the recent 2008 financial crisis' takeovers. Say about nationalization of Royal Bank of Scotland whose majority shareholder is now UK Government.  
> **username_3**: @Lumi For State to control the risk that bank are taking it would mean to scrutinize every single transaction. And it's legal for bank to take risk because they claim that despite taxpayers backed Deposit Guarantee Scheme, they are private sector.  
> **username_4**: @matcheek Could you provide evidence for this claim that banks can arbitrarily create entries in their books without this being classed as fraudulent? You are looking in the wrong place for the abuses of this system - I would recommend you dig into loan securitization if you want to understand the roots of the 2008 crisis in the UK and elsewhere.  
> **username_3**: @Lumi The immediate cause or trigger of the crisis was the bursting of U.S. (United States) housing bubble, which peaked in 2004 [Wiki](https://goo.gl/iUAKIa) If you think the roots of 2008 crisis have been incorrectly identified please correct it.  FRB is not classified as fraud as far as I can tell, yet the very basis of FRB is just about arbitrarily (to some extent) creating entries in the books. That's the way it is without getting involved in the intricacies of FRB.  
> **username_4**: @matcheek - And what caused the bubble? There is nothing arbitrary about double entry book keeping - quite the contrary, why are you claiming that there is?  
> **username_3**: @Lumi Correct me if I am wrong. The very foundation of FRB is that people believe that they can withdraw cash at any point because that's what their bank account balance shows them, yet if all of them wanted to withdraw the assets tomorrow only a small percentage of them would succeed by the very definition of FRB.  So if bank goes full FRB and keeps, say, 5% from every deposit we get money multiplier of rank 20. That's what I mean by arbitrarily created entries.  
> **username_4**: @matcheek - So when was the last time you paid your rent in cash? Apropos the mechanics - the bank doesn't keep 5% from each deposit. It has some amount of asset cash. Depending on the country it is in, it is required to maintain deposits as a multiple of that amount. In the UK, for example, the reserve requirement is 0%, on the mainland it is either 1 or 2%. In a similar way it is also required to have a capital buffer, which is a fraction of its loan book - the Basel capital requirement. None of this is arbitrary, and banks are audited regularly to ensure they are within their limits.  
> **username_3**: @Lumi So when was the last time you were told by your bank that you will be allowed to withdraw cash only if more than ~95%  deposits are not called?? FRB by definition is about arbitrarily taking risk. If you can't see that let's agree to disagree. Also, I should applaud you for having a sense of humour - the sentence _banks are audited regularly to ensure they are within their limits_  by Lumi should be printed on the cover of every report on financial crisis 2008.  
> **username_4**: @Matcheek And if you have a look at those reports, you will find that they were. As I keep saying, you appear to be deliberately  looking in the wrong place for the very real problems with this system. So I hope they're paying you... btw. not to worry you or anything, but the technology providing your internet connection is also based on statistical multiplexing. Don't forget to rail against the fraudulent ISP's for not letting everybody max out their connection simultaneously.  
> **username_3**: Let us [continue this discussion in chat](http://chat.stackexchange.com/rooms/25691/discussion-between-matcheek-and-lumi).  

---

