You ever stop and look at your banking app and realize those numbers aren't actually "anywhere"? It’s a weird realization. You work forty hours a week, someone sends a signal to a server, and suddenly a digit on your screen flips from a four to a five.
Honestly, if you tried to go to the bank tomorrow and ask for every cent you own in crisp twenties, they’d probably tell you to come back in three days. Maybe longer if you've been doing well for yourself.
The truth is, if you're asking isn't most money virtual, the answer is a resounding yes. But it’s not just "digital" in the way a photo is digital. It’s virtual by design. About 90% of the world's money exists only as entries on a ledger. Only about 10%—and in some countries like the UK, as little as 3%—is actually physical cash you can touch, smell, or lose under a couch cushion.
The Great Ledger Illusion
Most people think banks are like giant piggy banks. You put $1,000 in, they put it in a box with your name on it, and wait for you to come back.
That’s not even close.
When you deposit money, the bank doesn't store it. They owe it to you. It becomes a liability on their balance sheet. They take that cash and immediately lend it out to someone else to buy a car or start a sourdough bakery.
This is what experts call Fractional Reserve Banking.
Basically, banks are only required to keep a tiny sliver of their deposits available as "reserves." In the United States, the Federal Reserve actually dropped the reserve requirement to 0% for many institutions during the 2020 pandemic and hasn't looked back.
Think about that. The bank can theoretically lend out almost everything.
Where Does the New Money Come From?
Here is the part that usually breaks people's brains: banks don't just lend existing money. They actually create it.
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When a bank approves a $500,000 mortgage for a house, they don't go into a vault and grab bags of gold. They don't even transfer it from another account. They simply type "$500,000" into the borrower's account.
Poof. New money.
This is "commercial bank money." It’s virtual. It’s an IOU that the rest of society has agreed to treat as real value because we trust the system. According to the Bank of England, the majority of money in the modern economy is created by commercial banks in this exact way. It’s not printed by the government; it’s typed into existence by a loan officer.
The Physical vs. Digital Divide in 2026
We are living through the fastest move away from physical currency in human history. By the start of 2026, digital wallet users are expected to top 5.2 billion globally.
In places like Sweden, cash is practically a relic. You’ll see signs in shop windows saying "No Cash Accepted." Even in the US, while we love our greenbacks, physical currency (what the Fed calls M0) is a tiny fraction of the "Broad Money" (M2) that includes all your checking, savings, and money market accounts.
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Why We Can’t All Cash Out at Once
You’ve probably heard of a "bank run." This is what happens when everyone realizes the money is virtual and tries to turn it physical at the same time.
Because the bank only holds a fraction of its total deposits in actual cash or reserves at the Central Bank, they literally cannot pay everyone back at once. This isn't a glitch; it’s a feature of how the global economy grows. If every dollar had to be backed by a physical coin, the economy would move at the speed of a horse and buggy.
Virtual money allows for liquidity. It lets capital flow across oceans in milliseconds.
The Rise of Central Bank Digital Currencies (CBDCs)
If most money is already virtual, why are governments freaking out about "Digital Pounds" or "Digital Dollars"?
There’s a difference between the "virtual" money in your Chase account and a CBDC.
- Bank Money: This is a private IOU from a commercial bank. If the bank fails, you rely on insurance (like the FDIC) to get paid.
- CBDC: This would be digital "legal tender." It’s like a digital version of a $20 bill issued directly by the government.
Central banks are racing to build these because they’re worried that private digital currencies (like stablecoins or even tech-giant-issued tokens) might take over. They want to make sure that even in a 100% digital world, the government still controls the "ledger."
The Bank of England is currently in the "design phase" for a digital pound, often nicknamed "Britcoin," though they've been very clear it won't replace physical cash just yet. They know that for some people—the elderly, the unbanked, or the privacy-conscious—physical cash is a lifeline.
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Is Virtual Money "Real"?
This is the philosophical part. If you can’t touch it, is it real?
Value is just a collective hallucination we all agree on. If you can use those digital digits to buy a steak, pay your rent, or get a flight to Japan, they are real. The reality of money isn't in the paper; it’s in the purchasing power.
However, the virtual nature of money makes it vulnerable to things physical cash isn't.
- Cybersecurity: A house fire can burn your cash, but a server hack can theoretically wipe out a ledger.
- Surveillance: Cash is anonymous. Virtual money leaves a footprint. Every latte you buy creates a data point.
- Devaluation: Since it's so easy to "create" digital money through lending, it's also easy to create too much of it, leading to the inflation we’ve all been feeling at the grocery store.
What You Should Actually Do
Knowing that your money is basically a data point on a server shouldn't make you panic, but it should change how you manage it.
- Diversify your ledgers. Don’t keep every single cent in one bank. If their system goes down for a weekend (it happens), you’re stuck.
- Keep some "analog" wealth. Whether it's a bit of physical cash for emergencies or tangible assets, having something that doesn't require a Wi-Fi connection to prove its value is just common sense.
- Watch the "Money Supply" (M2). When you hear news about the M2 money supply shrinking or growing, they are talking about the total amount of this virtual money. When it grows too fast, your savings buy less.
- Understand your protections. In the US, the FDIC insures up to $250,000 per depositor. If you have more than that in one virtual "bucket," you’re technically an unsecured creditor to that bank.
The world isn't going back to gold coins. We're moving further into the cloud. The "virtual" nature of money is what allows you to get a mortgage, get paid via direct deposit, and buy things with a tap of your watch. It’s efficient, it’s fast, and it’s mostly made of thin air.
To stay on top of how this affects your actual buying power, you can track the Federal Reserve's H.6 release, which shows the current levels of different types of money in the system. Seeing the gap between M0 (cash) and M2 (everything else) with your own eyes is a great way to understand just how digital our world has become.