Credit creation - cashless intra bank and inter bank transactions

In English, the root of the word ‘credit’ is ‘credo’ - the Latin word for ‘I believe’.

In the old days, before ‘credit creation’, exchange banks needed to maintain something close to a 100% ratio between its deposits and its reserves or precious metal and coin.

For example, when the deposits stood at around 19 million florins, the metallic reserves of the banks uses to be at around 16 million.

A run on the bank was therefore a virtual impossibility, since the bank had enough cash on hand to satisfy nearly all of its depositors if, for some reason, they all wanted to liquidate their deposits at once. No doubt, this made the bank secure. But, it prevented the bank from performing what would now be seen as the defining characteristic of a bank: credit creation.