This came from question about negative interest rates and holding

"cash" in a "vault".

As physical legal tender is at most 10% of money supply, why does a corporation (FORD) /investment company (FIDELITY), or state pension (CALIPERS) would need to "store" its digital cash in a bank?

Wish I could be more precise but wrapping my mind around currency that is just a bunch of entries on an SSD is strange. If question needs editing, feel free.

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    How else are you suggesting they store it? How is this related to personal finance? Mar 18, 2021 at 21:48
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    You seem to imply that all money that is not hard currency is "digital" and can be stored on an SSD. That is not the case...
    – D Stanley
    Mar 18, 2021 at 22:09
  • @ChrisInEdmonton Yes, probably better in economics so
    – paulj
    Mar 22, 2021 at 18:49

3 Answers 3



Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The main functions of money are distinguished as: a medium of exchange, a unit of account, a store of value and sometimes, a standard of deferred payment. Any item or verifiable record that fulfils these functions can be considered as money.

The purpose of storing it in the bank’s computer is to make a “verifiable record” of it.

Banks (and other financial institutions) have this role because it was they who traditionally created money in the form of banknotes. Initially, any bank could do this but governments have progressively limited the banks that can do so: the Federal Reserve in the US, the Reserve Bank in Australia, the Bank of England in England, the Bank of Scotland, Clydesdale Bank and The Royal Bank of Scotland in Scotland etc.

Notwithstanding, banks remain highly regulated, are vigorously audited and operate on trust so they have a strong disincentive to cheat so they are trusted to maintain the “verifiable record”. Car companies, investment firms and pension funds aren’t so trusted.

One of the proposed advantages of cryptocurrency is that there are no trusted organisations. The “verifiable record” is maintained in the distributed blockchain and operates by consensus you have a Bitcoin because most of us agree you do.

  • 1
    This is the thing. Bank accounts are not cash. Bank accounts are computer records. You give the bank cash, and you are paying the bank to make a computer record saying they owe you some cash. You can get the cash back out if you let them make a computer record saying they don't owe you it any more. But if you pay by bank transfer, the record is the money.
    – user253751
    Mar 19, 2021 at 14:51
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    The Scottish banks can print bank notes, but they can’t create money by doing so. They are required to hold an equal value of Bank of England notes to back the notes that they print. Technically, they are promissory notes rather than legal tender.
    – Mike Scott
    Mar 19, 2021 at 17:08
  • @MikeScott: Indeed, RBS lost a completely insane amount of money in 2008 and had to be bailed out by the Bank of England. A "real" central bank would not be able to go bust in that fashion.
    – Kevin
    Mar 19, 2021 at 18:20

Where else would you keep track of your money? MOST currency is digital these days, and somebody has to be the keeper of the records.

Your employer doesn't hand you a bunch of cash on payday - they either give you a paper check, which is simply a theoretical representation of cash, or they make a direct deposit into your bank account, which is another representation of cash.

In the days before computers, your "money" in the bank was just a ledger entry that some underpaid, overworked clerk would notate whenever a transaction occurred. How's that any different in practice from what you're talking about? When you bought your car from Ford, did you haul cash to the dealership, or did you sign a piece of paper that simply transferred electrons from a lender's account to Ford's?

There has to be a trusted third party who keeps track of who owns what, and nowadays it's largely digital. If you want to make a large withdrawal in cash, you generally have to notify your bank in advance so they can arrange to have it on hand when you come in for it - rarely would any bank branch keep enough on hand to satisfy more than what it estimates is the average daily requirement to fulfill withdrawals.

Interestingly, my local branch of Wells Fargo actually RAN OUT OF CASH at one point yesterday because so many people were showing up to withdraw their stimulus deposits, so there was a brief period when they couldn't honor further cash requests until more money was delivered by armored car.

Since banks loan out your deposited money, none of them would EVER be able to meet demand if everyone were to show up and demand withdrawal of their funds in cash. The point is, it's all theoretical and digital now.

To your point about "hauling it around on an SSD", what do you think most people who hold cryptocurrency do? There's no "bank" per se, and no asset backing it of any kind. If you lose your digital wallet with cryptocurrency, your money's GONE. Witness the list of incidents on the web where people have trashed their hard drives or lost their computers and as a result lost their crypto holdings. It makes sense, then, that you'd use some form of "cyberbank" to hold on to it for you so as to make sure that doesn't happen, right?

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    But then cyberbanks get hacked from time to time. Their security isn't always as good as a real bank's.
    – Simon B
    Mar 18, 2021 at 23:48
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    Tell that to B of A, Wells Fargo, Citi, Chase...all of whom have been hacked to one degree or another in recent years. ANY target is susceptible to hacking if it poses a big enough challenge (and potential for gain) to the hacker. Banks have had more time/experience in dealing with this, but they're not invulnerable either.
    – RiverNet
    Mar 18, 2021 at 23:51
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    @SRiverNet But real banks are usually insured and are guaranteed by governments. That doesn't apply to cyberbanks / crypto exchanges.
    – Polygnome
    Mar 19, 2021 at 11:13
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    Crypto exchanges seem to have a much higher rate of failures than traditional banks.
    – pjc50
    Mar 19, 2021 at 14:33
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    It only seems that way. If you look at FDIC records, hundreds of banks fail every year in this country. It just isn't widely publicized so as not to undermine confidence in the banking system as a whole. In most cases, the government helps to arrange for another, stronger bank to take over the remains of the failed one for the sake of continuity.
    – RiverNet
    Mar 19, 2021 at 20:47

For a large corporation (and quite frankly even most businesses in general) it would be very impractical for them to maintain "I Owe You's" between them and all the businesses and customers they do transactions with. (regardless if the transactions are digital or done with physical cash) Therefore the need to interact with mainstream financial services and hold accounts with banks.

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