Suppose there's a country called Crook Islands. The president is John Crook, one of his sons owns a bank called Crook Island Bank domicilated on Crook Islands, and the other son is the Minister of Finance, who is also in charge of controlling the bank.

Now, this bank creates an account in U.S. Dollars and adds a sum without balance, i.e. forged bank money.

Crook Islands have also an account on a normal commercial bank in Singapore, with money from nomal legal business sovereign bonds etc.

Now, some amount is versed from the uncovered account of Crook Island Bank to the Singapore account.

President Crook is intelligent enough not to exaggerate, he is doing well to his people and can create a good image of himself so that nobody suspects him to do illegal things.

What mechanism exists to discover forged book money?

  • $\begingroup$ If the amount is kept low enough that the bank can cover it, then this basically describes the fractional reserve system, which every developed country uses. $\endgroup$
    – user253751
    Jul 21, 2022 at 13:10

2 Answers 2


When analysing the transfer you need to look at both sides of the balance sheet. Specifically, a transfer between banks always consists off assets and liabilities that net each other out. For example, when you make a tansfer from your bank account in the US to that of someone else in the US. The bank will tansfer the credit in form of a liability (from its balance sheet to the balance sheet of the other bank) and an asset (it will transfer reserve money of the same amount).

The process is similar for international transfers. The transfer will show up as a liability on the balance sheet of the bank in Singapore (because it is a credit to Crook Island). This needs to be offset by an actual asset that has to sent by Crook Island and to be received by the Bank in Singapore. If the account in Singapore is in US\$, then Crook Island has to somehow send actual US\$ in the amount of the transfer. To do that, the Crook Island bank needs to have actual US$ cash or assets that can be converted into US\$, which it then has to send.

Obviously, you can make the case more convoluted, for example involving the Crook Island Central Bank (if there is any) or the Bank for International Settlements (BIS), or even adding on top various interbank transfers at home or abroad, but ultimately it boils down to the simple mechanism above. For example, the BIS wouldn't send money to Singapore on Crook Island's behalf if there were not some Crook Island assets backing it.

So, from the Singaporean bank's perspective, there is no issue with a transfer from Crook Island, because Crook Island has to actually transfer assets (a loan to Crook Island is a different story, but that was not the question). From Crook Islands perspective it's probably difficult to detect the fraud in the local bank. Someone would have to go and look very closely at the balance sheet and evaluate any assets that are claimed to back the "forged bank money". The two sons would probably prevent this.

Incidentally, the requirement of the mechanism described above is one reason why North Korea doesn't forge bank money, but actual US\$ banknotes! It sells them at a discount for real ones, which it can then use to make transfers abroad (for example, when it imports something).


This does not seem like forged money, this seems like the Singaporean bank is giving credit to a bad creditor.

A useful mechanism would be due diligence while performing the client's (the Crook Island Bank's) credit/background check.

Failing that they will probably discover it is in default when they fail to make a payment.

  • $\begingroup$ The Singapore bank does not give a credit, it just receives a transfer. How would the Singapore bank make a background check? $\endgroup$
    – Jeschu
    Jun 19, 2022 at 18:43
  • $\begingroup$ Other aspect of your answer: who may fail to pay what to whom? $\endgroup$
    – Jeschu
    Jun 19, 2022 at 19:16
  • $\begingroup$ If I get a loan of a billion dollars from a bank, the bank is fine until I actually transfer the money out of my account (e.g., by buying something). Once that happens, the bank has to transfer the money. Similarly, when the Crook Island Bank transfers digital dollars (for which it has no backing) to the Singaporean bank, the latter is fine until the CIB actually tries to pay for something with the money. At which point the Singaporean bank transfers some dollars, believing it will eventually be reimbursed by the CIB. This is credit. $\endgroup$
    – Giskard
    Jun 19, 2022 at 20:33

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