Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

198 Money, Bank Credit, and Economic CyclesBank A (t 2 )(21) Debit Credit400,000 Demand deposits Cash 400,000(the remainder of the loan)After the borrower withdraws the entire loan, the bank’sbalance sheet looks like this:(22) Bank ABalance SheetAssetsLiabilitiesCash 100,000 Demand deposits 1,000,000Loans 900,000Total Assets 1,000,000 Total Liabilities 1,000,000This balance sheet corresponds exactly with balance sheet(12), which we obtained using continental accounting methodsand which comprises demand deposits of 1,000,000 m.u.made by customers and backed by 100,000 m.u. in cash (thereserve ratio or requirement) and 900,000 m.u. in loans grantedto Z. Therefore once the borrower withdraws his entire loan,the accounting records of both systems are identical: 1,900,000m.u. exist in the market, of which 900,000 m.u. correspond tofiduciary media (the portion of demand deposits which are notbacked by cash balances at the bank, in this case 1,000,000 m.u.minus 100,000 m.u.) and 1,000,000 m.u. are physical monetaryunits (the 100,000 m.u. in the bank’s vault and the 900,000 m.u.that have been handed over to Borrower Z and which he hasalready used for his own purposes). 1818 The banking practices of the English-speaking world have beenadopted in Spain as well, as evidenced, among other sources, by Pedro