This feels like a bizarre article that seems to be 'fixing' a confusion no one actually has. Also, if the premise of your article is that the 'dictionary is wrong because I feel otherwise and that's why everyone is confused', then you should consider the parsimonious explanation that no one is actually confused, that the dictionary is right, and that it is you has invented a confusion.
I didn't find this article very enlightening.<p>It uses too many words to explain a straightforward concept: You hand your cash over to a bank, in exchange they give you an IOU. They give out IOU's far in excess of the amount of cash assets they actually hold.<p>The concept of "short-term promises in exchange for long-term promises" was a bit more illuminating.<p>It might also be misleading to say the bank <i>takes ownership</i> of your deposits. More accurate to say they take custody, given the strong fiduciary obligations the transaction imposes on them (at least in developed economies).<p>The intrusive sign-up-to-subscribe form a mere few paragraphs in doesn't win the author any love from me, and while I don't generally mind mspaint-flavored art I found the annotated illustrations somewhat amateur. The whole article feels like it was written by a youth who just discovered the concept of fractional reserve banking and wants to educate the world.
<i>This also means you've failed to make a distinction between the two forms of money in our society: state money ('water'), and bank money ('promise for water').</i><p>Technically the "state money" is also just a promise. In years long past, it was a promise of a particular quantity of precious metal. More recently, it's not a promise of that, but they strongly imply that one who possesses state money can use it to pay taxes to the state.
Lots of valid critique for this piece. Will add that "state money" and "bank money" is a poor way to talk about credit.<p>In terms of references, tons and tons and tons of prior art defining money and so forth. A book I recently enjoyed a great deal is:<p>The Nature Of Money, Geoffrey Ingham<p><a href="https://www.amazon.com/Nature-Money-Geoffrey-Ingham/dp/074560997X" rel="nofollow">https://www.amazon.com/Nature-Money-Geoffrey-Ingham/dp/07456...</a><p>And this more recent Bank of England paper is exceptional:<p><a href="https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy" rel="nofollow">https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...</a>
The point of this article is: a bank deposit is an asset for you, the depositor, and therefore a liability for the bank. A mortgage is a liability for you, and therefore an asset to the bank.<p>Sometimes we get confused and we think that the bank deposits must be assets for the bank, and mortgages must be liabilities. This isn't because of some linguistic quirk. It's because its <i>good</i> for the bank to have a lot of deposits, because it means it's doing a lot of business. In the same way a company with a billion-dollar line of credit is likely doing better than a firm who can't borrow a cent.
<i>> "If this is you, you've made an error, and have fallen into the trap of thinking that banks 'lend out the water that I've put inside them'. This also means you've failed to make a distinction between the two forms of money in our society: state money ('water'), and bank money ('promise for water'). And both of these misunderstandings are facilitated by the linguistic glitch we are trying to deprogram."</i><p>I don't think this clarifies much. Talking about categories like "state money" and "bank money" doesn't make the problem clear.<p>I have come to the conclusion that the problem with fractionally reserved money isn't the fractional reservation mechanism at all. Rather, the problem is that banks effectively promise the same money to multiple people <i>at the same time</i>. There is one "piece" of money, but multiple people have claims on it.<p>If deposits were timed (like CDs) and the banks could only loan out the money for the time it was tied up, there would be no problem. In fact, there would be no need for a reserve ratio, just loss provisions. A "piece" of money could be loaned out an infinite number of times, in fact.
Every bank would just need to show a loanable amount curve over time as well as a loaned amount over time, and you could easily see if a bank was in trouble or not well in advance.<p>Demand deposits could not be loaned, of course. Basically, force banks to borrow long and lend short.<p>This is what I'd like to see tried.
The "bank" in "bank deposits" is an attributive noun (a.k.a. a "noun adjunct"). In "oil deposit," since oil is a mass noun, we interpret the phrase as meaning "a deposit made of oil." But "bank" is a count noun--the phrase "a deposit made of bank" makes no sense--so the natural interpretation is "a deposit related to a bank."<p>Essentially, "bank" is just a noun being used as an adjective (as in phrases like "horse race," "corn maze," "motor vehicle," "chicken noodle soup bowl," etc.)
This speech by the SNB chairman describes fractional reserve banking well in my opinion: <a href="https://www.snb.ch/en/mmr/speeches/id/ref_20180116_tjn" rel="nofollow">https://www.snb.ch/en/mmr/speeches/id/ref_20180116_tjn</a>
It sounds like he's saying that the banks should have a type system for money, maybe something like this:<p><pre><code> datatype Money
= Deposit of int
| Reserves of int
</code></pre>
(Or maybe a unit system) and we shouldn't think of these as comparable..
It's not a linguistic trick. It used to be that banks had to keep a certain percentage of they money they had on deposit on the premises. Slowly, this amount (the "reserve rate) was lowered to 0% under Obama.
The main mistake is thinking deposits are taken out of banks.<p>Once you realise that a bank note is a receipt for a deposit at the central bank it all becomes clear.<p>We just swap deposits between ourselves
In Ireland, you make a lodgement when you are paying into a bank.<p>I was in disbelief when I first realised that no-one in the UK knows what a lodgement is.
I can’t tell whether this is debunking a myth I didn’t believe to begin with, or if I do believe the myth but am too dumb to recognize that it’s what this article is about. This is bizarrely opaque for so many words about a fairly small (I think?) scope of knowledge.