Lame confession: I have no freaking clue how banks work.

By ROSIE WATERLAND

I broke a few people’s brains when I wrote about how confused I got at the post office last month. If you were one of those people, it’s probably best you bow out of this article now. (You have been warned).

I realised yesterday that there is another vital part of life that I’ve made it to 27-years-old without understanding.

I have no freaking clue how banks work. I honestly just assumed that I put my money in the bank and it stayed there until I needed it. In a setting not unlike a vault at Gringott’s or Scrooge McDuck’s basement.

It’s just one of those things I never really thought about. Until I thought about it. I’ve just taken for granted that it all works and the rest of the details are none of my concern. Like how cows turn into burgers.

Anyway, last week someone I know (who is embarrassed and has requested to remain anonymous), kicked off my newfound interest in the financial sector, when she asked the following:

“When you transfer money online, who physically transfers it? Are there truck drivers or something?”

This immediately made me look up from my desk. Good freaking question. Obviously I understand that the money isn’t shipped around in trucks every time you pay an online bill (sorry, anonymous friend – even I knew that much), but when you transfer money online, where does it go?

Does online money even exist? Guess what? APPARENTLY IT DOESN’T.

Upon being informed of this I proceeded to lose my mind in a ‘if a tree falls in the forest/existential crisis/where does space end’ kind of way. Here’s how the conversation went down:

Rosie: So hold up, hold up. Is there a physical piece of money for every online piece of money that gets exchanged online?

Jamila: (*the editor who is now questioning my employment) You mean like an actual piece of plastic with a number on it that one person hands to another person who hands it to the business you’re buying something from? No.

Rosie: But I spend most of my money online. How could it not be real?

Jamila: Well, you’re thinking about cash money as if it’s something that has inherent worth. It doesn’t.

Money is simply a metal or plastic symbol of value. It’s a construct that allows us to measure the worth of various goods in comparison to other goods, for the purpose of exchange.

Nowadays western society tends to use electronic funds. So, yes, there is a finite amount of physical money in circulation but there is no requirement to actually have that sitting in a little box somewhere with your name on it.

Rosie: So… Wait. WAIT. You’re telling me if I get paid, and then I pay a bill online – that money never existed?!? It was just a CONCEPT? What kind of hippy philosophical bullshit is that? It’s my money!

Jamila: (losing patience) It did exist, Rosie. It doesn’t have to be something that is physically passed around though. Anyway, even if there was a physical cash representation of every cent you had sitting in the bank – the bank would still be loaning it out. It’s not just sitting in a giant – or not so giant – pile somewhere.

Rosie: But, if the money doesn’t actually exist, what happens if everyone goes to the bank and wants to get their money out at the same time? Doesn’t the bank have a responsibility to make sure everyone’s money is available?

Jamila: Well that’s called a run on the bank. Think about what’s been happening to the Greek economy in the past few years, or in Argentina a few decades back now. The problem they had is that people were so concerned about the constantly changing value of their money (this is called inflation) that they became distrustful of the banks.

But when huge numbers of people are going to the bank, all trying to withdraw funds at the same time, the bank won’t necessarily have the cash on hand to cater for that. So you want to prevent that sort of situation occurring.

Rosie: WHAT?!? But it’s our money! Where is all the money?

Jamila: The bank takes people’s money and invests it, or loans it to other people. That’s the whole point of a bank.

Rosie: I didn’t give them permission to do that!

Jamila: Well, you did. When you signed up to the bank. And they pay you for letting them use your money while you don’t need it; that’s why you get interest on your savings. That’s the bank basically paying you back for letting them use your money for other things for a period of time.

Rosie: But how can they invest my money and still have the money in my account when I need it? What if when I go to the bank to withdraw $100, they’re like, “Soz, Rosie, your moulah is kind of tied up in Amalgamated Building Society stock right now. We’ll let you know how it goes.”

Jamila: *Silence.*

Rosie: And what if they lose it! What if they invest my money and lose it? I get like 4 cents a year in interest on my savings. What if they lose all my money and then are just like ‘well, we were giving you that 4 cents a year so… you knew the risks.”

Jamila: Okay, maybe let’s try a different tact… Do you remember what happened in the Mary Poppins movie? When the little boy started yelling that the bank wouldn’t give him his money back? And then all the people thought the bank was in trouble and wanted to withdraw their funds?

Rosie: (freaking out and ignoring Jamila) So, let me get this straight. Money is just a concept. The money I earn doesn’t actually exist. Everybody gives the bank their non-existent money, which is then hypothetically spent on hypothetical investments, which means the bank doesn’t actually LOOK AFTER everyone’s money, they just hypothetically send it away. So if everyone wanted their money at the same time, the bank wouldn’t have it. And if the bank invests badly on your behalf and loses everything, the hypothetically non-existent money becomes actually non-existent and then it’s gone. And too bad, that’s it.

Jamila: Um, sort of….

Rosie: WHAT? Our money is resting on a HOUSE OF CARDS PEOPLE. How is this legal?

Jamila: Well, if you want to have your money in a bank, that’s what you’ve agreed to.

Rosie: Can’t I just say to them, “Look, guys, I want to keep my money here but I don’t want you doing anything fancy with it. I’ll pay fees and whatever, but I want my physical money here, in a box with my name on it. When I put money in, it’s in. When I take money out, it’s out. And I’m going to do random cash ‘spot checks’ to make sure it’s all here and there hasn’t been any funny business.

Jamila: Well, you’re basically describing the equivalent of a shoebox under your mattress.

Rosie: Well, maybe that’s where we’re at now.

Jamila: *No words. Foetal position. Head in hands. Tears.*

So was I the only one who had no clue that banks play fast and loose with our cash? Or that ‘cash’ is just a hypothetical bloody concept to begin with? Does that mean I can just say to my boss, “Hey Mia, I’d like you to hypothetically pay me a 100 grand a week – don’t worry, it’s all to do with existentialist economics SMUG WINK”

How am I so under-prepared for life? Maybe I should’ve been trying to figure this stuff out instead of learning how to juggle at drama school. Maybe this is why I never have any money. That, or ASOS. Where I purchase things with PRETEND MONEY.

Ugh. My head hurts.

Are there any perfectly normal everyday things that you have no idea about?

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