Sorry to point out that there are some misunderstandings here. You say at (24:20):
"... and cash reserves move when deposits move from bank to bank..."
The point is that deposits essentially represent a relationship between the customer and the bank, whereby the deposits, which are a floating debt of the bank, have their counterpart in the claims of the customer - one does not exist without the other. This is an expression of the central principle of accounting, according to which there is no entry without an offsetting entry. This means that a deposit ALWAYS has a counterpart, regardless of which side you look at it from.
A deposit is therefore a debt relationship and debt relationships are defined between two precisely defined parties. Such a debt relationship between a buyer and his bank can be referred to as a DRb (= Debt Relation buyer). After a transfer to the seller, this debt relation DRb disappears (direct debit), while the seller and his bank establish a new debt relation DRs (credit note), which has NOTHING to do with the debt relation DRb. Even if both are for the same amount, they are not the same thing. DRb has ceased to exist, while DRs has been created NEW. You can say that one is conditioned by the other, but conditionality does not mean identity.
In short: deposits do not move! They are created and pass away - but they do not move.
In case you are interested in the processes that actually take place during a transfer:
Hi Renee, thanks for the comment. Let me ask a question to be clear on what you are saying. Assume you and I both have an account at the same bank. A "bank deposit" is evidence of the bank's 'obligation to pay out standard money on demand' to the deposit owner. Let's say I buy a piano from you and write you a check (a payment order) for the purchase. The bank will fulfill this order by reducing the deposits in my account while simultaneously increasing the deposits in your account. Because of this order to the bank, its 'obligation to pay out standard money on demand' has shifted (moved) from me to you. This is what I mean when I say deposits "move" from one person to another. I would say the same thing if I paid you in cash: the cash "moves" from me to you. Of course, as you say, the payment involves the bank reducing its obligations to me and increasing its obligations to you. Are you objecting to the terminology being used? Thanks
(PS: If you and I have accounts at different banks, the transaction is fully settled when cash reserves equal to the amount of the check move from my bank to yours, but this is an incidental detail.)
the argument is simple and striking: MY debt relation with the bank (=MY deposit) is not the same as YOUR debt relation with the bank (=YOUR deposit). Even the fact that both have the same size is not enough to be able to say that the deposit has migrated, because that would mean that a thing that is logically and legally independent and transferable changes its place of existence. However, a debt relationship (=deposit) is always fundamentally bound to two actors and only exists between these two. And the actor pair Jim-Bank is not the same as the actor pair Renée-Bank.
You yourself say that the bank must transfer central bank money in order to fulfill this transfer order by means of a payment. This always applies: in the case of cash payments, in the case of cash checks and in the case of bank transfers. I wrote the linked article for the latter. And even in the case you have constructed with only one bank, the payment is made without paper money, but with payment entries. The bank fakes a payment from your account (cash transfer account / deposit Jim) and a deposit to my account (deposit Renée / cash transfer account), which also results in a payment in central bank money. The reason for this is that accountants and tax authorities don't like it so much when a transfer is made from one liability account to another liability account, which is why such transactions are always "gross" - i.e. detailed. The reason why no paper money must be moved is, that the cash transfer account results in nil. This is generally the case with clearing operations, which generate payments without the use of means of payment. Only settlement operations will cause the transfer of means of payment. (One of the reasons, why measuring the quantity of money is nearly impossible.)
And never forget: a bank will only get into debt against a customer if and only if it gets the necessary means of payment from any source to fulfil the coming payments due to the incurred debt.
Hi Jim, great introduction. I am really looking forward to this series.
As someone who thinks that money is precious metals and PM only, do you differentiate between fiduciary media and credit? And if so, how? And if "standard money" like cash and bank reserves are liabilities of the central bank, doesn't that make them credit?
Sorry to point out that there are some misunderstandings here. You say at (24:20):
"... and cash reserves move when deposits move from bank to bank..."
The point is that deposits essentially represent a relationship between the customer and the bank, whereby the deposits, which are a floating debt of the bank, have their counterpart in the claims of the customer - one does not exist without the other. This is an expression of the central principle of accounting, according to which there is no entry without an offsetting entry. This means that a deposit ALWAYS has a counterpart, regardless of which side you look at it from.
A deposit is therefore a debt relationship and debt relationships are defined between two precisely defined parties. Such a debt relationship between a buyer and his bank can be referred to as a DRb (= Debt Relation buyer). After a transfer to the seller, this debt relation DRb disappears (direct debit), while the seller and his bank establish a new debt relation DRs (credit note), which has NOTHING to do with the debt relation DRb. Even if both are for the same amount, they are not the same thing. DRb has ceased to exist, while DRs has been created NEW. You can say that one is conditioned by the other, but conditionality does not mean identity.
In short: deposits do not move! They are created and pass away - but they do not move.
In case you are interested in the processes that actually take place during a transfer:
https://reneemenendez.substack.com/p/who-is-transferring-money-when-a?utm_source=profile&utm_medium=reader2
Hi Renee, thanks for the comment. Let me ask a question to be clear on what you are saying. Assume you and I both have an account at the same bank. A "bank deposit" is evidence of the bank's 'obligation to pay out standard money on demand' to the deposit owner. Let's say I buy a piano from you and write you a check (a payment order) for the purchase. The bank will fulfill this order by reducing the deposits in my account while simultaneously increasing the deposits in your account. Because of this order to the bank, its 'obligation to pay out standard money on demand' has shifted (moved) from me to you. This is what I mean when I say deposits "move" from one person to another. I would say the same thing if I paid you in cash: the cash "moves" from me to you. Of course, as you say, the payment involves the bank reducing its obligations to me and increasing its obligations to you. Are you objecting to the terminology being used? Thanks
(PS: If you and I have accounts at different banks, the transaction is fully settled when cash reserves equal to the amount of the check move from my bank to yours, but this is an incidental detail.)
Hi Jim,
the argument is simple and striking: MY debt relation with the bank (=MY deposit) is not the same as YOUR debt relation with the bank (=YOUR deposit). Even the fact that both have the same size is not enough to be able to say that the deposit has migrated, because that would mean that a thing that is logically and legally independent and transferable changes its place of existence. However, a debt relationship (=deposit) is always fundamentally bound to two actors and only exists between these two. And the actor pair Jim-Bank is not the same as the actor pair Renée-Bank.
You yourself say that the bank must transfer central bank money in order to fulfill this transfer order by means of a payment. This always applies: in the case of cash payments, in the case of cash checks and in the case of bank transfers. I wrote the linked article for the latter. And even in the case you have constructed with only one bank, the payment is made without paper money, but with payment entries. The bank fakes a payment from your account (cash transfer account / deposit Jim) and a deposit to my account (deposit Renée / cash transfer account), which also results in a payment in central bank money. The reason for this is that accountants and tax authorities don't like it so much when a transfer is made from one liability account to another liability account, which is why such transactions are always "gross" - i.e. detailed. The reason why no paper money must be moved is, that the cash transfer account results in nil. This is generally the case with clearing operations, which generate payments without the use of means of payment. Only settlement operations will cause the transfer of means of payment. (One of the reasons, why measuring the quantity of money is nearly impossible.)
And never forget: a bank will only get into debt against a customer if and only if it gets the necessary means of payment from any source to fulfil the coming payments due to the incurred debt.
Thanks for that explanation.
Hi Jim, great introduction. I am really looking forward to this series.
As someone who thinks that money is precious metals and PM only, do you differentiate between fiduciary media and credit? And if so, how? And if "standard money" like cash and bank reserves are liabilities of the central bank, doesn't that make them credit?
Thanks.