# Depositing cash question **URL:** \ **Category:** Factual Questions\ **Created:** [February 15, 2015, 3:58pm UTC](https://boards.straightdope.com/t/depositing-cash-question/712725 "2015-02-15T15:58:22Z")\ **Posts on this page:** 19\ **Page:** 1
**Author:** ![Mr.Kobayashi](https://avatars.discourse-cdn.com/v4/letter/m/4af34b/32.png) [@Mr.Kobayashi](https://boards.straightdope.com/u/Mr.Kobayashi)\ **Post date:** [February 15, 2015, 3:58pm UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/1 "2015-02-15T15:58:22Z")
I’ve got to be careful how I word this as it might be an incredibly stupid question, but then asking stupid questions is how stupid people learn things so forgive me in advance if I sound like “how is money formed how bank use money”. Right, say I find a $20 bill on the ground. Being a greedy sort I keep it and go to the bank where I can deposit it into my account and then spent it via card. Or I can not bother and just spend the bill itself, either way I’ve still got the same value. But if I deposit it at the bank, hasn’t the amount been duplicated? I can spend it via card, but the bill itself still exists in the bank, they don’t shred it or anything when they deposit it. So what does the bank do with it? ---
**Author:** ![friedo](https://avatars.discourse-cdn.com/v4/letter/f/8edcca/32.png) [@friedo](https://boards.straightdope.com/u/friedo)\ **Post date:** [February 15, 2015, 4:01pm UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/2 "2015-02-15T16:01:32Z")
When you deposit cash, the bank transfers $20 from their own account to your account. The $20 bill then goes on top of a big pile in the vault. The net for the bank is zero. The net for you is $20. ---
**Author:** ![Mr.Kobayashi](https://avatars.discourse-cdn.com/v4/letter/m/4af34b/32.png) [@Mr.Kobayashi](https://boards.straightdope.com/u/Mr.Kobayashi)\ **Post date:** [February 15, 2015, 4:12pm UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/3 "2015-02-15T16:12:40Z")
Ah, I see, thanks for the quick answer **friedo** , and yes it is embarrassing that I’m only just figuring out things humanity had worked out when we still thought the sun went round the Earth. So the bill itself would remain in the bank’s possession presumably until the reverse situation occurs, I withdraw cash; the bank takes $20 out of my account and into theirs and gives me the bill back. How in Zeus’s name do they maintain the balancing act of making sure they have enough bills and enough in the bank’s own account? What happens if either - or both - the vault or bank’s own account run dry? ---
**Author:** ![Musicat](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/musicat/32/20189_2.png) [@Musicat](https://boards.straightdope.com/u/Musicat)\ **Post date:** [February 15, 2015, 4:22pm UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/4 "2015-02-15T16:22:33Z")
You might want to look into the concept of [Fractional Reserve Banking.](https://en.wikipedia.org/wiki/Fractional-reserve_banking) > [@](#): > > Fractional-reserve banking predates the existence of governmental monetary authorities and originated many centuries ago in bankers’ realization that generally not all depositors demand payment at the same time. Your deposit is shown as available for your use and the bank’s, too, to lend out. If they lend it out, we now have two $20 bills in circulation, but no more goods available than before. That can cause inflation. And if they lend it out, they can’t supply sufficient funds if all depositors simultaneously want to withdraw everything. The trick is to convince depositors that they _could_ withdraw all of their funds at anytime, so why should they want to? ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [February 15, 2015, 4:31pm UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/5 "2015-02-15T16:31:23Z")
> [@Mr.Kobayashi](#): > > So the bill itself would remain in the bank’s possession presumably until the reverse situation occurs, I withdraw cash; the bank takes $20 out of my account and into theirs and gives me the bill back. How in Zeus’s name do they maintain the balancing act of making sure they have enough bills and enough in the bank’s own account? What happens if either - or both - the vault or bank’s own account run dry? The bank is a part of a larger system. There are several and they may be on the state or federal level, but eventually everything can be said to stop at the Federal Reserve System and I’ll pretend that’s the only one. It can be said to be a bank for banks. The Fed requires banks to keep a portion of their deposits on reserve, hence the name. Based on this reserve, the Fed can physically ship money - bills and coins - to the bank so that they can fill their ATMs and give out money at the cashiers’ windows. Money goes the other way as well, mostly in the form of older bills that are taken out of circulation and replaced with new bills. That’s why it’s more likely for you to get crisp new twenties out of the machine than old ragged ones. Old-fashioned as it may seem in a world of electronic transfer, armored cars are still an integral part of the banking system. ---
**Author:** ![Schnitte](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/schnitte/32/9033_2.png) [@Schnitte](https://boards.straightdope.com/u/Schnitte)\ **Post date:** [February 15, 2015, 4:51pm UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/6 "2015-02-15T16:51:41Z")
> [@friedo](#): > > When you deposit cash, the bank transfers $20 from their own account to your account. The $20 bill then goes on top of a big pile in the vault. The net for the bank is zero. The net for you is $20. This is not exactly true, at least not for any reasonable definition of transferring money from one account to another. When the $20 is deposited in a bank account, the bank credits this amount to the depositor’s account with that bank. This increases the bank’s liabilities to depositors by $20, but there is no other account from which this credit is debited; it’s simply an increase in the liabilities of the bank. Of course, its assets also rise by $20 (because of having the bill in its vaults now), so the bank’s balance sheet expands, but there is no transfer from one account to another taking place. ---
**Author:** ![Jonathan\_Chance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jonathan_chance/32/701_2.png) [@Jonathan\_Chance](https://boards.straightdope.com/u/Jonathan_Chance)\ **Post date:** [February 15, 2015, 5:49pm UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/7 "2015-02-15T17:49:29Z")
> [@Mr.Kobayashi](#): > > So the bill itself would remain in the bank’s possession presumably until the reverse situation occurs, I withdraw cash; the bank takes $20 out of my account and into theirs and gives me the bill back. How in Zeus’s name do they maintain the balancing act of making sure they have enough bills and enough in the bank’s own account? What happens if either - or both - the vault or bank’s own account run dry? This is not quite the way it works. The most likely outcome for any physical money - called cash in this instance but cash can mean other things as well - is a burn bag. The vast majority of money is electronic. From a quick and dirty check, the amount of physical cash in circulation - in your wallet, held at banks, in change jars, squished into souvenirs (a personal favorite of mine) - is a bit over $1 trillion. However, the total money supply appears to be - at least in 2011 from the numbers I found - about $10.5 trillion dollars. So for every $20 bill you find on the ground there’s actually an extra dollar-value of $180 or so in the money system. That money is what’s used when you use a debit card, pay bills online or by check and so forth. No one actually sends bills to various businesses when such occurs. They just enter corresponding credits and debits to make it balance out. Physical cash - bills and coins - is a convenience only at this point. It’s there to provide lubrication to the economic system. And when they get damaged in almost any way and returned to a bank they’re counted and destroyed so new bills and coins can be added to the supply. As I recall, a coin can last 20 years or longer on average whereas a bill has an average lifespan of a year or two. So no kidding. What happens to your $20 bill? It gets burned. Fwumpf! ---
**Author:** ![bob\_2](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bob_2/32/3341_2.png) [@bob\_2](https://boards.straightdope.com/u/bob_2)\ **Post date:** [February 15, 2015, 6:43pm UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/8 "2015-02-15T18:43:35Z")
Suppose I was your bank. You give me the 20 to hold for you until you need it. While I have it I may well lend it to someone else but I will make sure that I have enough cash so that my regulars can always get some if they need it. When you come back and ask for your 20, it will not be the same bill but you don’t really care about that. ---
**Author:** ![Jonathan\_Chance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jonathan_chance/32/701_2.png) [@Jonathan\_Chance](https://boards.straightdope.com/u/Jonathan_Chance)\ **Post date:** [February 15, 2015, 9:31pm UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/9 "2015-02-15T21:31:27Z")
Yay! Cash is fungible! ---
**Author:** ![ALOHA\_HATER](https://avatars.discourse-cdn.com/v4/letter/a/76d3ee/32.png) [@ALOHA\_HATER](https://boards.straightdope.com/u/ALOHA_HATER)\ **Post date:** [February 16, 2015, 4:42am UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/10 "2015-02-16T04:42:46Z")
> [@Mr.Kobayashi](#): > > How in Zeus’s name do they maintain the balancing act of making sure they have enough bills and enough in the bank’s own account? What happens if either - or both - the vault or bank’s own account run dry? Well, that’s the job of the vault teller. She’ll decide, for example, to ship out $X in ones and ship in $X in 20s based on the expected needs of their customers. A minimum of cash is kept in the vault because keeping too much cash on hand is a risk. She might decide to keep more hundreds on hand if the first of the month is coming up or it’s the holiday season. ---
**Author:** ![Lasciel](https://avatars.discourse-cdn.com/v4/letter/l/e79b87/32.png) [@Lasciel](https://boards.straightdope.com/u/Lasciel)\ **Post date:** [February 16, 2015, 4:54am UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/11 "2015-02-16T04:54:58Z")
We’re far enough down for anecdata now, right? 😃 In 79 when gas prices went stupid and there was a bit of a recession, my grandfather remembered the Depression and went to his local bank to take everything out of one of his accounts. He was told that he had to go to the main bank location in the big city to make that transaction - the teller told him it was “policy” for accounts closing. Well, gas was shit expensive, and he was already frustrated and worried, so he didn’t want to go, and he argued about it - he finally badgered the poor teller into admitting that their location had already had quite a few people doing the same thing, and that they were physically running out of cash - if he wanted to cash out, he HAD to go downtown, because they didn’t have enough left at the local branch to cover his balance and keep the office open for everyone else’s regular transactions until the money truck came by again. He was always sort of perversely proud of that story. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [February 16, 2015, 4:55am UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/12 "2015-02-16T04:55:33Z")
> [@Jonathan\_Chance](#): > > From a quick and dirty check, the amount of physical cash in circulation - in your wallet, held at banks, in change jars, squished into souvenirs (a personal favorite of mine) - is a bit over $1 trillion. However, the total money supply appears to be - at least in 2011 from the numbers I found - about $10.5 trillion dollars. Fun fact: of that $1 trillion (closer to $1.3 trillion today) 77% of it consists of $100 bills. Rarely seen in the US, they are popular in foreign countries where the local currency is unstable. They are a convenient store of value. > **[Why the share of $100 bills in circulation has been going up for over 40 years](https://qz.com/29561/why-the-share-of-100-bills-in-circulation-has-been-going-up-for-over-40-years)** > > Nearly 80% of all US currency in circulation is denominated in $100 bills. (As of June 30, 77%.) ---
**Author:** ![thelurkinghorror](https://avatars.discourse-cdn.com/v4/letter/t/7c8e57/32.png) [@thelurkinghorror](https://boards.straightdope.com/u/thelurkinghorror)\ **Post date:** [February 16, 2015, 6:39am UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/13 "2015-02-16T06:39:40Z")
The bank I worked at was considered a large branch. Even so, we didn’t have millions of dollars on hand. We had regular customers who ran cash-heavy businesses (check cashing places and the like). The would call the manager every few days and order a specific amount of cash. Before they came we would make sure to have that on hand. Otherwise, it’s a lot like running a restaurant - you decide to order more of a particular denomination (or “sell” excess off) based on current stores and past experience. As far as internal accounting, if we got a bill that was reaching the end of its life, the system had a category for damaged bills. They would be accounted there, but did not hurt the balancing of the register. Same with counterfeits, except they required extra paperwork to report and send to the Secret Service. > [@Mr.Kobayashi](#): > > I’ve got to be careful how I word this as it might be an incredibly stupid question, but then asking stupid questions is how stupid people learn things so forgive me in advance if I sound like “how is money formed how bank use money”. The difference between ignorance and stupidity is that the stupid make no attempt to correct their knowledge, and are sometimes proud of their lack of knowledge. So it’s not stupid. Ask away! ---
**Author:** ![ALOHA\_HATER](https://avatars.discourse-cdn.com/v4/letter/a/76d3ee/32.png) [@ALOHA\_HATER](https://boards.straightdope.com/u/ALOHA_HATER)\ **Post date:** [February 16, 2015, 7:23am UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/14 "2015-02-16T07:23:52Z")
> [@Lasciel](#): > > We’re far enough down for anecdata now, right? 😃 > > In 79 when gas prices went stupid and there was a bit of a recession, my grandfather remembered the Depression and went to his local bank to take everything out of one of his accounts. He was told that he had to go to the main bank location in the big city to make that transaction - the teller told him it was “policy” for accounts closing. Well, gas was shit expensive, and he was already frustrated and worried, so he didn’t want to go, and he argued about it - he finally badgered the poor teller into admitting that their location had already had quite a few people doing the same thing, and that they were physically running out of cash - if he wanted to cash out, he HAD to go downtown, because they didn’t have enough left at the local branch to cover his balance and keep the office open for everyone else’s regular transactions until the money truck came by again. > > He was always sort of perversely proud of that story. Well, yeah. I don’t see why people think the bank is going to have practically limitless amounts of cash. The folks who insure them wouldn’t be happy with that kind of risk, would they? (I don’t mean the FDIC who insures deposits; I mean the companies that insure the bank’s assets.) So no, if you have a large balance, you probably can’t withdraw it all in cash. They’ll probably try to get you to split between cash and a cashier’s check. If you want a huge amount, or an ungodly change order like a fortune in fives and twos, call ahead. Call ahead about a relatively routine change order if you want to save everybody some time. > [@thelurkinghorror](#): > > As far as internal accounting, if we got a bill that was reaching the end of its life, the system had a category for damaged bills. They would be accounted there, but did not hurt the balancing of the register. Same with counterfeits, except they required extra paperwork to report and send to the Secret Service. The banker’s term for damaged bills is “mutts,” the banker’s term for counterfeits is “pains in the ass.” ---
**Author:** ![bob\_2](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/bob_2/32/3341_2.png) [@bob\_2](https://boards.straightdope.com/u/bob_2)\ **Post date:** [February 16, 2015, 10:30am UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/15 "2015-02-16T10:30:22Z")
wasn’t it once the case that American banks did not have ‘local’ branches. ie. The bank in Smalltown Iowa was The Bank, and had to store all its assets on the premises. I assume that this was why the likes of Bonnie and Clyde could find banks worth robbing. I also assume that the bank in Wonderful Life was a ‘stand-alone’ bank. Am I correct and if so, when did it change? ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [February 16, 2015, 3:38pm UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/16 "2015-02-16T15:38:18Z")
> [@bob\_2](#): > > wasn’t it once the case that American banks did not have ‘local’ branches. ie. The bank in Smalltown Iowa was The Bank, and had to store all its assets on the premises. I assume that this was why the likes of Bonnie and Clyde could find banks worth robbing. I also assume that the bank in Wonderful Life was a ‘stand-alone’ bank. > > Am I correct and if so, when did it change? [Branch banking](http://en.wikipedia.org/wiki/Branch_%28banking%29) > [@](#): > > Historically, branch banking in the United States - especially interstate branch banking - was viewed unfavorably by regulatory authorities, and this was codified with the enactment of the McFadden Act of 1927, which specifically prohibited interstate banking. Over the next few decades, some banks attempted to circumvent McFadden’s provisions by establishing bank holding companies that operated so-called independent banks in multiple states. To address this, The Bank Holding Company Act of 1956 prohibited bank holding companies headquartered in one state from having branches in any other state. > > Most interstate banking prohibitions were repealed by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.[3] Research has also found that anticompetitive state provisions restricted out-of-state growth when those provisions were more restrictive than the provisions set by the Interstate Banking and Branching Efficiency Act or by neighboring states.[4] Some states have also had restrictive bank branch laws; for example, Illinois outlawed branches (other than the main office) until 1967, and did not allow an unlimited number until 1993.[5] ---
**Author:** ![davida03801](https://avatars.discourse-cdn.com/v4/letter/d/b5e925/32.png) [@davida03801](https://boards.straightdope.com/u/davida03801)\ **Post date:** [February 16, 2015, 6:58pm UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/17 "2015-02-16T18:58:01Z")
Another concept to check out is the “Velocity of Money”, part of the OP original question references this I believe. At its root is how fast money passes from one holder to the next. That 20 dollar bill never gets cut up into pieces as it passes from one person to another to another. At the end they all got 20 dollar value for the bill as they used it. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [February 16, 2015, 9:53pm UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/18 "2015-02-16T21:53:01Z")
> [@davida03801](#): > > Another concept to check out is the “Velocity of Money”, part of the OP original question references this I believe. At its root is how fast money passes from one holder to the next. That 20 dollar bill never gets cut up into pieces as it passes from one person to another to another. At the end they all got 20 dollar value for the bill as they used it. Actually velocity typically connects with some measure of the money supply. Narrow measures include cash - but also checking accounts. Broader measures included savings accounts and money market funds. Still broader measures include CDs that exceed FDIC limits in the US. Velocity can be thought of as turnover in money, but in practice it’s just a formula: V=GDP/M, where GDP is the output of the economy, and M is the money supply (however measured). History: If V is predictable, then targeting growth in the money supply is a good way of targeting GDP growth. That was what the theory of monetarism depended on. It was tried by the UK and the US in the late 1970s and early 1980s, but failed. V is not predictable - or rather it was _prior to monetary targeting_. After that, the relationship broke down. Goodheart of the New Zealand central bank summarized: “Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [February 16, 2015, 11:47pm UTC](https://boards.straightdope.com/t/depositing-cash-question/712725/19 "2015-02-16T23:47:38Z")
> [@Measure\_for\_Measure](#): > > Goodheart of the New Zealand central bank summarized: “Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.” Goodhart. Bank of England.