If a government issues currency and it ends up in bank accounts abroad, what stops banks from making a 'mistake' during a transfer, accidentally duplicating the currency?

Is there some central register somewhere indicating exactly who has how much of a currency?

For example, I have $100 in the bank. I pay $50 to someone else, so the bank is supposed to take $50 away from me and add it to the other person's balance (or send it to their bank). How does the country that issued the currency ensure it actually happens like this? What prevents the bank from sending $50 away without subtracting it from my account (essentially creating another $50 out of nowhere)?

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    I am not sure I understand the question. If you are asking if there is an agency which traces who owns the 100$-bill n°123456789, no there is not. Evaluating monetary aggregates, and in particular the quantity of cash in circulation, is a task each and every central bank tries to do - but it is pretty difficult. ecb.europa.eu/stats/money_credit_banking/monetary_aggregates/…
    – Evargalo
    Commented Jun 3, 2019 at 12:19
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    How would they? Do you think that they can keep track of the currency that you get in change from a store and use to make a purchase at another store? Unless they have a method to track every single exchange it is not possible.
    – Joe W
    Commented Jun 3, 2019 at 12:44
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    @Evargalo I think the question is what prevents a bank from increasing some balance from 100$ to 200$ without an extra 100$ being put into the bank.
    – JJJ
    Commented Jun 3, 2019 at 12:53
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    I've edited your question to include an example. If this isn't what you wanted to ask, feel free to revert the edit.
    – JJJ
    Commented Jun 3, 2019 at 14:13
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    I think the question asks overlapping questions. I don't think it's asking about physical currency, per se, but rather, what's to stop a bank claiming it has $1000 in it's digital account, as opposed to $500. It also seems to be querying currency exchanges (what's to stop inter-country duplication of a given amount of money across exchanges). Question needs clarification. Commented Jun 4, 2019 at 14:29

8 Answers 8


Bank notes have serial numbers. The mint keeps track of what's been issued, and also the quantity of notes that have been taken out of circulation and destroyed.

Back accounts are another matter. In that case there's not very much "currency" involved, but instead "assets" and "liabilities". Liabilites are money owed to others: to a bank, each account is a liability. They will have on hand a mix of assets to weigh against this: usually a small amount of actual cash, the rest in government and other bonds, loans, etc. (The exact amount of reserve assets required to cover liabilities is specified in a set of regulations known as "Basel 3" for European banks).

So, if some money is transferred between accounts of the same bank, the total liabilites and assets stay the same. If they accidentally duplicate bank balances, then they have a slight problem: they've increased their liabilities but not the assets. They've not managed to duplicate currency, they've just given the appearance that the total of all bank accounts is larger than expected. This is not a problem for the government, it's a problem for the bank, because they've simply lost money. If both people withdraw their £50, then the bank has to find two £50 notes to give them from their assets.

It's important to note that the loan issuance process looks like this too. If a bank issues a £100k mortgage, it adds an amount for the future value of the loan to its assets (complex to calculate, but more than £100k - this is where the profit comes from) and adds £100k to its liabilities by simply increasing the bank account of the recipient.

Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

(from https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy )

Note that there is nothing special or magic about banks in this process - anyone with a pen can create money in the form of IOUs if they can find someone willing to accept it.

This is why there are at least four different possible values for the total amount of money in the economy, named "M0" to "M3".

  • Of course, there are some bank notes that are accidentally lost or destroyed, so the total amount of currency thats actually in circulation is always lower than the figure you get by subtracting what’s been officially destroyed from what’s been issued.
    – Mike Scott
    Commented Jun 4, 2019 at 11:50
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    It didn't really fit in the original answer, but I wanted to mention en.wikipedia.org/wiki/Alves_dos_Reis and his extraordinary fraud of persuading the printers to print him real banknotes - which was discovered when some of them had duplicate serial numbers.
    – pjc50
    Commented Jun 4, 2019 at 11:59
  • Yeah, capital requirements are thought to be more relevant nowadays than reserve requirements (which another answer chose to emphasize). The Bank of England for example has no reserve requirements. Also monetary policy seems to be ultimate brake on broad money creation. See economics.stackexchange.com/questions/27660/… Commented Jun 4, 2019 at 13:01
  • The last line is intriguing, except all you say is there's four. Commented Jun 4, 2019 at 23:04
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    You missed an important part of money supply in most countries... the monetary base. MB is M0 (currency) plus central bank deposits. It's called the base because this is what fractional reserve banking can work on. In the US MB is a little more than twice M0. And that's the key to the OP's question, when money is transferred across banks they either send a truck with cash or more commonly the money is moved electronically on central bank ledgers based on the amount they have on deposit there. Thus, the central bank is the central register of electronic cash.
    – user71659
    Commented Jun 5, 2019 at 17:23

For example, I have $100 in the bank. I pay $50 to someone else, so the bank is supposed to take $50 away from me and add it to the other person's balance (or send it to their bank). How does the country that issued the currency ensure it actually happens like this? What prevents the bank from sending $50 away without subtracting it from my account (essentially creating another $50 out of nowhere)?

It looks like you have a misconception about how bank accounts work.

So, suppose that Alice has a bank account at Bank One, with a balance of $100.

What does that account balance mean, exactly? It sounds to me like you're thinking that it means, "Alice has $100." You're also thinking that if a bank sent $50 to someone else's account with another bank, without deducting any money from Alice's account, then they'd be essentially creating $50 out of nowhere. And you're thinking that banks have a responsibility not to do this, and that governments must have a way of keeping track of their currency, in order to prevent banks from doing this.

None of that is true!

What that bank account balance actually means is, "Bank One owes $100 to Alice." In other words, Alice has given $100 to Bank One (or done something else to create the account balance), and as a result, Bank One is obligated to pay $100 back to Alice whenever she wishes.

Now, suppose that Bob has a bank account at Bank Two, and Alice wants to transfer $50 from her account into Bob's account. How does this transfer happen? It's a three-step process:

  • Bank One debits Alice's account by $50.
  • Bank One gives $50 to Bank Two.
  • Bank Two credits Bob's account by $50.

Bank One breaks even, because on the one hand, they now owe Alice $50 less than they owed her previously; and on the other hand, they sent $50 to Bank Two. And Bank Two also breaks even, because on the one hand, they received $50 from Bank One; and on the other hand, they now owe Bob $50 more than they owed him previously.

What would happen if Bank One sent $50 to Bob's account, without deducting any money from Alice's account? The answer is, Bank One would be out $50! They sent $50 to Bank Two without getting anything in return! They haven't created $50 out of nowhere; they've merely taken $50 of their own money and given it to Bob.

What stops banks from doing that? Simple: if they did that, they'd be giving away their own money.

All that said, let me answer your other question:

Is there some central register somewhere indicating exactly who has how much of a currency?

No, but there is something similar.

Above, I wrote that as part of the transfer, Bank One gives $50 to Bank Two. But how do they do that, exactly? What is the mechanism they use to transfer the money?

The answer is that banks have bank accounts, too! Bank One has an account with the country's central bank. Bank Two also has an account with the country's central bank. So Bank One simply tells the central bank, "Please transfer $50 from us to Bank Two." And so the central bank debits Bank One's account by $50, and credits Bank Two's account by the same amount.


There isn't a central registry with any detailed information on how much of any particular currency is in circulation. Governments have estimates for physical currency in circulation, but most money in existence today is simply a number in an account with no physical object representing that value. In general banks don't allow accounts to be in multiple denominations (you won't have an account with $5CAD and $5USD it would be converted to a single value ~$8.71USD) furthermore, not all banks accept all foreign currency in the first place so it may be required that you exchange currency at a third party.

Preventing a transfer from duplication is simple accounting and auditing practices in action. With modern accounting software a transfer of $100 becoming $200 is essentially impossible. Mistakes are far more likely to be incorrect amounts, targets, or destinations; which can be caught by audits, but aren't going to duplicate value.

As for physical currency the actually printing/stamping of bills/coins is handled by central agencies that employ numerous anti-forgery techniques in creating currency. They manage issuing new currency and destroying old currency through centralized banks that are essentially banks for banks. This allows a rough estimate of how much physical currency exists, but it's incredibly difficult to get accurate numbers. There is a lot of money stuffed under mattresses, destroyed in fires, lost at sea, etc. that prevents any accurate tracking of the total money supply of physical currency. Banks do keep track of serial numbers for currency in their possession, and that information is used to flag bills that were part of bank robberies, authorities would be alerted if such money were to show up at a bank.

  • The auditing part seems plausible, but the question is then who gets to audit. Within one central bank's jurisdiction it seems easy, but how is this done from money coming in from the outside? For example, when euro is send to a third country. Does the ECB get to audit the receiving bank in a third country to make sure no extra euro appeared there out of thin air? Or is it left to the jurisdiction of the third country and their central bank?
    – JJJ
    Commented Jun 3, 2019 at 14:15
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    @JJJ: Local and foreign banks create extra USD and Euros out of thin air every day. That's how extending loans works when you have fractional reserve banking. And it's basically how most of the money gets created. Commented Jun 3, 2019 at 14:29
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    @DenisdeBernardy I don't have time to carefully research it (and don't know enough about it myself) but from what I gather the author of that article seems to be quite 'out there'.
    – JJJ
    Commented Jun 3, 2019 at 15:09
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    @JJJ: if you ever find the time (and interest to look into economics) he has several series on economic modeling and the history of economic thought lectures on his website. Commented Jun 3, 2019 at 17:27
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    @JJJ: just read en.wikipedia.org/wiki/Fractional-reserve_banking Commented Jun 4, 2019 at 12:58

Making Money

While a government can issue currency, in most cases it is issued by a Central Bank. These banks are often government owned, but could also be private entities. While interesting, this is largely irrelevant to the question except to note that money doesn't have to come from a government, but regardless of source, it still has fundamental similarities.

For one, most currency issued by governments or central banks is physical. At this point, it is extremely uncommon, if not unheard of, for a government to have a digital currency as its primary currency. Physical currency is designed to be extremely difficult to duplicate, preventing - or at leas dramatically reducing - counterfeiting, whether intentional or not (as in the case of the bank forgetting to withdraw funds from an account).

At its simplest, you would deposit your physical currency at the bank, and they credit it to your account. While it may have been common practice at one time to keep the same monetary instruments (bills, coins, bars, etc) you deposited on hand so that you would later withdraw the same exact items, today the money is simply noted in a ledger by the bank. You might deposit a $20 bill with the serial number 123456789, and the next person to make a withdrawal might get that bill. If you went back later to withdraw your $20, you might get a bill with the serial number 234567890. This is fine, because in practically all meaningful circumstances, it spends the same.

Digital Currency

So, your account balance is nothing more than a number in a ledger. If the bank messes up the bookkeeping, adding (or subtracting) a 0 to the end of your account, it is between you and them to resolve it - the government is not party to the dispute.

Modern banking is significantly more complex, of course, they do not generally move physical currency between different banks, and often commit more currency than they have on balance. What does that mean?

When banks need to transfer money (say, to cash checks), they often do it in aggregate, cashing thousands of checks at once against the institution that the check is drawn upon. So, when you cash the check from your employer, your bank (assuming it is not the same bank) sends the check to your employers bank to get the money. But, there are hundreds or thousands of other people cashing checks at your bank that are also drawn upon your employers bank, and so this request is pooled together for the day and requested as one large transaction. Modern banking may work on a shorter schedule as computers can check and transfer funds very quickly, but the concept remains the same. However, at the same time, hundreds or thousands of people that have accounts at your employers bank may be cashing their paychecks from employers that maintain their accounts at your bank, and so money flows both directions. If this bidirectional flow is imbalanced at the end of the day, the bank running a deficit will be charged an interbank (or overnight) rate on the difference as the deficit is effectively treated as a loan between the banks.

The second part of this - committing more currency than the bank has on balance - is typically regulated by the government (called the reserve requirement), and applies mostly to making loans. The banks take risk when lending money - it is possible that that money is not repaid, and the bank then takes a loss. However, lending works because the vast majority of loans are repaid - the higher this amount, the lower the interest rate, in general. If this repayment percentage drops too low - that is, if people largely stop repaying loans, and thus making loans becomes too risky - then banks will stop making loans. But, lets assume that the economy is working reasonably well and loans are made. At the simplest level, lets assume that person A takes out a home loan in order to pay person B, and both people bank at the same place. From the bank's perspective, their total assets haven't changed - the ledger simply reports the money in person B's account instead of person A's. And, since the bank monetizes deposits by making loans from them, they are free to loan that money again. Indeed, since they reasonably expect to earn interest from you on the loan, they can possibly loan out a little bit more money in anticipation. This could continue repeatedly, so that the bank could potentially lend out the same money a dozen times, or more. This article provides more details on how this works.

How Governments Track Their Currency

Ultimately, governments track their currency by simply keeping track of how much they print (which is quite easy), and then how much they destroy as banks return worn or damaged (or even simply old) currency to the central bank for destruction, typically receiving shiny new currency in exchange. They might employ additional measures, such as requiring certain reporting from financial institutions, etc, but ultimately it comes down to knowing how much money was made and how much reclaimed to be destroyed, and possibly accounting for a certain percentage of loss. This article from the New York Fed provides some details of how the US manages currency flow.

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    There is something like 20 trillion dollars in the US economy. Only about 10% of that is physical.
    – cHao
    Commented Jun 4, 2019 at 11:44
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    Stop using "virtual currency" to mean bank accounts. It doesn't mean that: en.wikipedia.org/wiki/Virtual_currency Commented Jun 4, 2019 at 18:59
  • @Fizz I changed "virtual currency" to "digital currency". Still perhaps not completely correct, since a paper ledger is just as well to represent the concept, but close enough considering practically no modern banks would still track accounts on paper.
    – cpcodes
    Commented Jun 4, 2019 at 20:22
  • This answer is flawed in that it misses out on central bank deposits. For the US dollar, 55% of the money supply, before fractional reserve, known as the Monetary Base, is in central bank deposits. Thus, the majority of US "currency" is digital.
    – user71659
    Commented Jun 5, 2019 at 17:12
  • @user71659 That is touched on in the last paragraph, and a link is included to provide more information about how secondary banks exchange money with the Federal Reserve (the central bank in the US). The details of this portion of currency flow is not important to the answer so I left it in a link, and instead summarized that money is created and destroyed at the central bank, which is really the bare minimum to monitor how much money is still in circulation. The exact percentage of currency held in the CB varies seasonally and is irrelevant to the question.
    – cpcodes
    Commented Jun 5, 2019 at 20:43

Federal Reserve

There are two ways to track United States issued currency. One is by the currency itself. If you have actual paper or coin currency, then clearly you have a valid claim. The other way is by the Federal Reserve. Each US bank has to justify its lending with the Federal Reserve. It must keep a certain amount back as reserves. Those reserves are held in accounts with the Federal Reserve system.

If a foreign bank would "accidentally" (either really accidentally or nefariously) create extra money, it wouldn't be able to prove the existence of the money when paying it to a US bank. And if it pays it to a foreign bank, then that bank would want the proof to give to a US bank.

Presumably central banks for other countries operate similarly.

  • I think this is exactly right. I'll add the Eurozone has an additional layer where each bank holds their reserves with their national central bank and the Eurosystem under the European Central Bank reconciles transfers between the national banks plus itself.
    – user71659
    Commented Jun 4, 2019 at 0:06
  • It doesn't work like this. Google "fractional reserve". The Fed doesn't keep track of the (M2) money created by banks except in aggregate. What the reserve requirements do (and they are zero in some countries e.g. UK) is to limit the amount of M2/broad money that can be created by banks. Commented Jun 4, 2019 at 12:45
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    @Fizz Please read up more on fractional reserve before telling other people that they don't know how it works. And the question is why can't a bank just spend money. Who audits that? The answer remains that the Fed does. If they didn't, they couldn't enforce the reserve requirement. Because banks could just say that they were in compliance while actually lending as much money as they want. .
    – Brythan
    Commented Jun 4, 2019 at 18:51
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    @Fizz The OP's question isn't about M2. The OP's question is actually how the monetary base, MB, is controlled. The answer is MB is physical currency + central bank deposits. Fractional reserve banking makes M1-M3 equal or greater than MB.
    – user71659
    Commented Jun 5, 2019 at 17:04

What you describe is exactly what happens. Banks create (virtual) money. Namely, if a bank actually "has" (whatever that means in this context where we do not talk about cash) a certain amount, then it can and will issue credits to a much higher amount. And suddenly their customers "have" money to buy cars and houses and whatnot ...

In most legislatures, there are legal regulations about the maximum allowed ratio, and fine-tuning this ratio is an important tool in guiding the economy as a whole. Why can't you do the same what banks can do? As in, hand out papers to your friends with a text written on it that your friends may buy for goods worth $10000 in any shop and that the shop owner is allowed to obtain the money from you, but pretty please should not really ask for cash? It's because the banks are generally more trusted than you ...

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    OP might care to know that this "virtual" money is really a loan which must be paid back, which speaks to OP's mistaken notion that it's possible to create "free" money this way.
    – Beanluc
    Commented Jun 3, 2019 at 21:18
  • "In most legislatures, there are legal regulations about the maximum allowed ratio, and fine-tuning this ratio is an important tool in guiding the economy as a whole." My understanding is that this used to be true, but it isn't actually true any more: new legislation has removed the caps a number of countries.
    – nick012000
    Commented Jun 4, 2019 at 7:17
  • Or here's another way of looking at it: There are actually two currencies: actual money created by the government - physical cash and central bank reserves - and bank deposits created by banks which for some reason we as a society have decided to also accept as money. Commented Jun 6, 2019 at 9:20
  • @nick012000: en.wikipedia.org/wiki/Reserve_requirement Also, it's not just banks which can do this. The ECB tracks an indicator known as the M3, which covers "shadow banking". Commented Apr 25, 2020 at 8:35
  • @Fizz From your link: "Canada, the UK, New Zealand, Australia, Sweden and Hong Kong have no reserve requirements."
    – nick012000
    Commented Apr 25, 2020 at 12:38

"If a government issues currency and it ends up in bank accounts abroad, what stops banks from making a 'mistake' during a transfer, accidentally duplicating the currency?"

Short answer: Nothing stops the bank, but it'll cause it to (eventually) go bust.


When a bank has a certain balance in your account, it means the bank is liable to pay that amount whenever you order it to, to whoever you order it to, or if it provides a cash withdrawal facility, to provide that amount in cash. All the money held by the bank has been received either by bank transfers or cash deposits, and similarly, all the money it pays out is sent through bank transfers or cash withdrawals. If a bank sends out more money than it has received, it's essentially borrowing from the market for that currency ($ in your example), and it's liable to pay that money back whenever requested to.

And yes, banks do "create" money in this sense: that's what interest on a savings account, or a loan is. However, banks also ensure they're collecting principal and interest on their loans, so that they're not liable for more than what they can pay.

On the other hand, there is the aspect of liquidity: how much can a bank pay "now". That's usually limited by the amount of cash it has in its reserves + the amount of cash it can get from other banks in exchange for the "virtual currency" it has in its own accounts with them (and notably, the central bank of the country, which usually prints its currency in exchange for each bank's deposits) - in essence, all "virtual currency" is backed by physical currency issued by the central bank.


What prevents the bank from sending $50 away without subtracting it from my account (essentially creating another $50 out of nowhere)?

Nothing, because banks are supposed to create money out of nowhere

Pretty much any normal, useful sort of bank in the world engages in fractional reserve banking. The bank only holds a fraction of the money deposited in it in reserve, and lends the rest of the money out to borrowers. The fraction held in reserve is used to give you your $50 if you show up to ask for it. If you don't show up to ask for your $50, and the borrower pays off their $50 loan, then the bank has $100, $50 of which did not previously exist.

This actually is a really useful and important process that most governments try to encourage most of the time, because most of the time it is useful to have the supply of money expand just the right amount. If it expands too much, that's called inflation, and if it contracts, that's called deflation. Both of these are bad in different ways, so to prevent that, many governments have central banks, that try to control the supply of money by lending money to other banks.

What keeps this all going is the basic understanding that not everyone who deposited $50 in the bank will show up on the same day to ask for it back. If every depositor shows up on the same day, that's called a bank run, and that usually means the end of the bank if the government doesn't intervene. Governments do all sorts of things to prevent that from happening, like imposing reserve requirements, so that banks don't lend out too much of their money. Or like deposit insurance, where the government guarantees to depositors that if the bank runs out of money, the government will pay them what the bank owes up to some limit.

It is important not to confuse money with currency. Currency (e.g. green pieces of paper and coinage) represents money, but it need not have any value itself. Currency is tracked in all sorts of ways. Money is created and destroyed all the time and isn't really tracked in that sort of detail.

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