When we think of money, we usually think of coins and banknotes. However, in our daily lives, many transactions are carried out without coins or banknotes. Payment by credit card, online transfer, direct debit… so many transactions rely on a completely virtual form of money.
This invisible but indispensable means of payment now constitutes the bulk of the money supply in circulation. But what is scriptural money? How is it created and used? What are its advantages and limitations? And above all, with the emergence of central bank digital currencies (CBDCs), could it soon undergo a major revolution?
What is scriptural money?
Scriptural money is a form of intangible money, meaning it exists only in the form of accounting entries in bank books. Unlike coins and banknotes (fiat money), scriptural money does not circulate physically but passes through transfers, checks, or even bank card payments. In concrete terms, when an employee receives their salary in their bank account, they do not directly receive banknotes; rather, their employer makes a transfer, which means that a sum is credited to their account in the form of scriptural money.
Similarly, when a person pays for their shopping with a bank card, the money does not physically pass from their hands to those of the merchant, but is simply transferred from one account to another. Today, the vast majority of payments and economic transactions are carried out using scriptural money, as it is more convenient and secure than cash.
How does scriptural money work?
Scriptural money works like a simple set of accounting entries in bank accounts and between different banks. When someone makes a payment by credit card or makes a transfer, the bank debits their account and credits the beneficiary’s account. No banknotes change hands; everything is done through accounting entries in the banks’ computer systems. For example, if you buy a €500 phone by paying by credit card, your bank deducts €500 from your account and adds it to the seller’s. This is a transfer of scriptural money.
Unlike coins and banknotes, which are produced by the Central Bank or the Monnaie de Paris, scriptural money is mainly created by commercial banks (e.g., BNP Paribas, Société Générale, Caisse d’épargne, etc.) when they grant loans. When a commercial bank grants credit, it does not withdraw this money from a vault full of banknotes; it simply creates a new sum that it enters into the customer’s account, and this is called monetary creation. In the current economic model, money is created by credit, and this is sometimes referred to as debt money.
Let’s take an example to better understand. You want to buy a car for €15,000, but you only have €5,000 in savings. You request a loan of €10,000 from your bank. The bank won’t seek this money elsewhere; it will simply enter +€10,000 into your bank account. This is when the scriptural money is created! Then, when you repay the loan, the amount you repay is gradually “destroyed,” as it disappears from the bank’s accounts.
To be allowed to do this, however, banks must demonstrate a certain liquidity to be able to cover possible defaults. We can therefore consider that the bank creates money with a mechanism close to the leverage effect .
Thus, scriptural money is primarily created through bank loans and circulates through electronic payments. It now represents more than 90% of the currency in circulation in the economy, a far cry from the banknotes and coins that we use less and less in our daily lives.
What are the advantages and disadvantages of scriptural money?
Scriptural money has many advantages, which explain its widespread use in the modern economy. First, it facilitates and accelerates exchanges, as it makes payments almost instantaneous, whether for an online purchase, a bank transfer, or an international fund transfer. It only takes a few seconds to send money to someone on the other side of the world, where cash would require long and costly physical transport. In addition, scriptural money is practical and secure because there is no need to travel with large sums of cash; transactions are carried out in just a few clicks via a bank card or mobile application. Finally, it allows for better traceability of financial flows, which facilitates account management and limits the risk of theft or loss of money.
However, scriptural money also has drawbacks. One of the main drawbacks is the sometimes too virtual relationship we have with money. Unlike cash that we see and touch, scriptural money only exists in the form of accounting entries, which can lead us to manage our finances less well. For example, it is easier to spend without counting and end up overdrawn with a bank card rather than with banknotes in hand. Another significant risk is fraud and hacking by malicious people who can falsify transactions, steal a banking identity, or even hack into accounts to embezzle money. Finally, scriptural money is entirely dependent on the proper functioning of the computer and banking systems because, in the event of a breakdown, bug, or cyberattack, it can become impossible to access one’s money, which can pose serious problems.
Are MNBCs the future of scriptural money?
Central bank digital currencies (CBDCs) could fundamentally transform book money as we know it today. Unlike traditional book money, which is created and managed by commercial banks, CBDCs would be issued directly by the central bank, thus guaranteeing greater security and stability. In practical terms, this would mean that instead of depositing their money in a traditional bank account, citizens and businesses could hold accounts directly with the central bank, reducing their dependence on private banks.
One of the key changes brought about by CBDCs would be a modernization of payments, as they would allow for even faster and more secure transactions, without a banking intermediary, and could even be used offline thanks to specific technologies. They would also promote financial inclusion, giving access to a digital currency to people who do not have a bank account but only a simple phone.
However, this revolution also raises questions. If everyone could deposit their money directly with the central bank, it could weaken commercial banks, which play a key role in financing the economy by granting credit. Moreover, a balance between innovation and privacy protection will need to be ensured, as a fully digital currency could theoretically allow authorities to track all transactions in real time.
In conclusion, CBDCs could strengthen scriptural money by making it faster, more secure, and more accessible, but their adoption will require careful consideration of their economic and societal impact. They probably won’t replace current scriptural money overnight, but they could profoundly change its functioning and role in our daily lives.
