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Comment by riphay | Hacker News Reader

> you can still walk into the bank and withdraw the $100 any time

This is true, but if everyone did this at once it would constitute a run on the bank and it would fall under its reserve ratio. Not to mention the amount of money in the banking system is far far more than physical currency in print.

This is part of why some types of accounts (trading accounts etc.) require a few days to clear transactions. The expansion of the money supply is throughout the banking system and not just cash and deposits.

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> This is true, but if everyone did this at once it would constitute a run on the bank and it would fall under its reserve ratio.

Yes, it would. So what? That isn't what stops bank runs from happening. What stops them from happening (now) is that people believe that their deposits are "guaranteed" by the government, so there's no need to go rushing to the bank and withdraw notes every time the economy takes a downturn. Before that guarantee was in place, there were indeed bank runs, and for the very reason I gave.

> the amount of money in the banking system is far far more than physical currency in print.

Yes, that's definitely true. And it's also true that most transactions, even for individuals, are not done in physical notes any more; they're done electronically (with debit cards or credit cards or wire transfers or whatever). So someone doesn't have to walk into the bank and withdraw their $100 in physical notes; they can do it any place, any time.

> And it's also true that most transactions, even for individuals, are not done in physical notes any more; they're done electronically (with debit cards or credit cards or wire transfers or whatever). So someone doesn't have to walk into the bank and withdraw their $100 in physical notes; they can do it any place, any time.

The difference between a credit card and a debit card is extremely relevant here. You can't run a bank with a credit card.

> You can't run a bank with a credit card.

Not when you make a credit card purchase, no. But you can when you electronically transfer funds from your bank account to pay the credit card bill.

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