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This is hypothetical but what would happen if you cannot lend more money than you have? Say you have £100, the maximum you can lend is £100. But somehow you lend £200 to Joe, and Joe spends all of it on chocolate and eats it all, but doesn't pay you back. So have you effectively just created an extra £100 out of thin air and inserted it into the money supply? Is this what banks are doing when they lend out more money than they actually have? What if we abolished this ability, what would happen? (just a guy interested in economics so apologies for my ignorance).

Thanks!

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    $\begingroup$ Seems like you are asking "what happens if you have no apples, but somehow give an apple to Joe and Joe eats it?" I am not sure how your premise can ever be fulfilled, or the "somehow" should be greatly clarified. $\endgroup$ – Giskard Apr 13 at 10:15
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    $\begingroup$ If bank A lends money (creating an asset and a liability, so in this sense increasing the money supply) to customer B who then uses that to write a cheque to supplier C who deposits it with bank D, then bank A owes bank D that amount whether or not B repays the loan. $\endgroup$ – Henry Apr 13 at 10:50
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    $\begingroup$ This question is just asking what would be the effects of moving to full reserve banking. There are already similar questions. Since this question phrasing is extremely awkward, I would recommend looking up full reserve banking and rephrasing the question. economics.stackexchange.com/questions/29641/… $\endgroup$ – Brian Romanchuk Apr 13 at 12:28

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