book money
The forms of money have changed over time. After commodity money, coins, paper tokens, and bank notes emerged, book money (also known as deposit money) finally followed. Book money is understood to be money that is only available in ledger books, i.e. in a bank account (primarily sight deposits). This does not include deposits that cannot be used for payment purposes at any time, such as savings books. In the past, money was moved for this purpose in physical ledger books. Today, this process takes place electronically.
Creation and disposal of book money
On the one hand, book money (or scriptural money) is created by depositing cash into an account where the money is available for payment at any time. By far the more important source of creation of book money is lending.
When loans are granted, book money is created. The bank does not require any previously "collected" funds for this. Conversely, when a loan is repaid, book money is destroyed. In phases where the economy and loan volumes are growing, the money supply typically grows as well.
Book money can be used for cashless payment transactions, such as credit transfers, direct debits and card payments. In addition, book money can be converted back into cash through withdrawals. It is important to know that book money (giral money) is not legal tender. It is subject to voluntary acceptance.
Trust as a foundation
Money is only accepted if a community trusts that the value of the money will still exist in the future. This is due to the development of its manifestations.
While in the past, when paying with gold and silver coins, the value was still backed by the value of the precious metal, this is not the case with cash and book money. Therefore, the existence of a political control body is important.
In Germany, this task is performed by the European System of Central Banks (ESCB), which consists of the European Central Bank and national central banks. The primary task of the ESCB is to safeguard price stability.
To this end, the inflation rate should be close to, but below, 2%. Higher inflation rates quickly destroy the value of money and erode confidence in a trust-based currency. If trust in money fades, this can have fatal consequences.