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Argentines Sidestep Cash With E-Banking
A guy named Doug writes: "It sounds like Argentina has found a way to avoid economic collapse. People are not allowed to take too much cash out of their bank account during a specified period of time. But more important, they are still able to carry on important transactions using electronic funds transfers.
Argentines can spend as much money as they want through electronic transactions, but are unable to strip their banks of cash as happened after the 1929 stock market crash.
Sure, this won't stop an economic depression from occuring but it is certainly one way of slowing the process and allowing for some stability to catch hold before a panic ensues."
What you say is true. It's the same in the US, and most other countries. (Though I think we use debit more in Canada, but that's another issue)
It's even worse than what you say.. it's not even about cash reserves. Even the numbers don't work out.
Money in the country has not been equal to cash in a long, long time.
Just look how banks work. It's a shame how it's not explained fundamentally in school.
Banks are NOT big vaults that store your money.. they are far, far more involved in the economy than that.
Say you need cash to start a business. You get a loan. The bank borrows this money from the Bank of Canada at the prime interest rate. Then they lend it to you, at their rate.
Then, of course, you buy something with that cash (Say you were loaned $10,000).
Now.. all those whom you paid with that money deposit THEIR money in the bank. Now... you need another $5000. The bank loans you this as well, out of the money that is on deposit from the other people.
So now, you have $5000 in your account (they just gave you a loan)
Collectively, the others have $10000.
So now, there is $15000 in circulation.. but only $10000 was put in in the first place. This happens over and over again.
So the ponit is.. if everyone took their money out, even if it was to transfer it to some kind of 'holding' bank that doens't lend out your money (such banks do exist, by the way), there simply would not be enough money out there. It's just not there.
Cash is a convenience.. and useful.. but we would be kidding ourselves if we thought our society worked on cash.
Even when everyone DID pay with cash.. the economy still does NOT run on cash.