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How people can be sure that somebody, cooperating with central bank (or working in it), is not creating money in digital or paper form for themself, so that nobody else notices it?

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  • $\begingroup$ Trying to respond to the -1; I know, it is very big thing in this site: I do not want to require full answer at once. I think details can be added in different answers. Also you can answer concretely about one country. $\endgroup$ – qdinar May 19 at 6:53
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    $\begingroup$ "Check" and "trust" are not the same thing. You can check that a banknote issued by the central bank of Zimbabwe is genuine (by technological means). As for trusting their monetary policy not to render it nearly worthless (by hyperinflation)... you can "check" that too, but by entirely different means. $\endgroup$ – Fizz May 19 at 10:58
  • $\begingroup$ @Fizz checking and trusting are in same function position. checking is a mean for trusting/believing. trusting usually does not happen independently, trust depends on some features like good reputation, being elected, etc.. $\endgroup$ – qdinar May 19 at 11:29
  • $\begingroup$ this question has -2 votes now, since yesterday. please, somebody, vote this question up, in order to not have it closed and deleted. $\endgroup$ – qdinar May 20 at 8:50
  • $\begingroup$ I gave an upvote as well as voting to reopen. It's a perfectly good question. I would recommend that you edit your question to make it clear whether or not you already understand "fractional reserve banking" (bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/…) because this may be critical part of any answer. $\endgroup$ – Mick Jun 16 at 9:00
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In modern economies, “money” is a liability of some entity. If it creates “money,” it is adding to its own liabilities. (E.g., bank deposits are liabilities of banks, and so if they just increased their deposits without offsetting lending activity, they just lowered their net worth.)

The only “cheating” is counterfeiting: issuing instruments that pretend to be liabilities of some other entity. Most large retailers have systems to detect counterfeit currency, so this is already a known factor. As for electronic money, security against fraudulent transactions (similar in effect to counterfeiting) is also an ongoing concern.

What about the government? There are many people who question the truthfulness of government statistics. However, the developed countries publish comprehensive statistical databases, and it is possible to cross-check the data against the other sources, as well as private data. (As an example, Chinese GDP statistics were often compared to electricity generation statistics, which were viewed as more reliable by market analysts.) Given the high levels of scrutiny of macroeconomic data, it is unclear to what extent data can be falsified.

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  • $\begingroup$ to the 1st 2 paragraphs: how does these work technologically? how people can see that this technology works? $\endgroup$ – qdinar May 19 at 6:13
  • $\begingroup$ “Technology?” It’s accounting. Putting aside the no longer relevant case of gold/silver coins, monetary instruments that show up on the balance sheet of the issuers as liabilities. Those entities have an interest in not have their own liabilities not grow for any reason, $\endgroup$ – Brian Romanchuk May 19 at 12:43
  • $\begingroup$ cannot central bank create money wihout being liable to anybody? $\endgroup$ – qdinar May 19 at 13:25
  • $\begingroup$ Look at their balance sheet statements: money is their liability. Central banks are part of the government (at least cuurently), and I discussed the government in my answer. $\endgroup$ – Brian Romanchuk May 19 at 13:32
  • $\begingroup$ how the counterfeiting possible and usually done? i assume with fake seals and stealed private key of digital signature? $\endgroup$ – qdinar May 19 at 13:33

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