Demand Deposits (10) - Fungible Money

What applies to oil and wheat also applies to a demand deposit in a bank. Although the money is fungible, ownership does not transfer to the bank. Rather the depositors own a share of all the money in the bank. This is true regardless of the form of money. If gold is deposited in the bank, the depositor changes ownership of a particular piece of gold, for a defined share of all the gold in the bank. He can always get his gold back, because the amount he has put in has been added to the total amount in the bank. Each depositor’s share of the total amount of gold is equivalent to the amount that they put in.

The same applies if the money is notes and coins or electronic money. All the money on demand deposit at the bank is jointly owned by the depositors. Each one owns a share of the total, which is equivalent to the amount they deposited. If money depreciated in value, the loss is shared by all depositors. The important point is that none of the money in demand deposits is owned by the bank.

Demand Deposits (8) - Fungible Goods

Some defenders of the modern banking system have argued that a bank is different from a warehouse, because money is fungible. A fungible good is one that becomes mixed when it is stored with more of the same good. An example is wheat. If my wheat is added to a silo containing wheat owned by other people, I will not be able to get my particular grains of wheat out. All that the silo owner is required to do is return any wheat of similar quality to what I put in a silo.

Oil is another example of a fungible good. Having a separate storage tank for each owner of oil would not be very efficient. It is better to store all the oil of a particular type in one tank. The operator of the tank will always be able to return oil to the person who put some in when he wants it, however he will not get exactly the same molecules of oil that he put. He will be quite happy as long as he gets oil of the same quality.

The defenders of the banks argue that money is a fungible good too. This is true. If you deposit gold coins in a bank, you may have an attachment to a particular coin, because you like the face that is printed on it, but most people will happy to get back any coin, as long it contains gold of the same weight and purity. Likewise, I don’t really matter what bank notes, I get when I with draw money from the bank, as long as they are not scruffy. I do not care, if I don’t get back the ones that I put in.