What is deposit money and how is it backed?

Answer 1

Deposit money refers to the funds held in bank accounts that can be easily accessed for transactions, typically in the form of checking or savings accounts. It is created when banks accept deposits from customers and extend credit through loans, effectively multiplying the money supply through the fractional reserve banking system. Deposit money is primarily backed by the bank's reserves, which are a fraction of total deposits, as well as by the bank's overall assets and the trust in its solvency. Additionally, government insurance schemes, like the FDIC in the U.S., provide further backing by protecting depositors' funds up to a certain limit.