The Bank Tokens Analogy is Wrong

4 April 2024


Those that follow me on Twitter/X will know I'm not a fan of unsound fiat money — money governments can debase. But nor am I a fan of unsound analogies about money and banking.

In this article, I’m going to address the ‘electronic bank tokens’ analogy, using the favourite tool of proponents of it: double-entry accounting. The analogy is primarily used to try to show central banks don't create money when they carry out quantitative easing or lend to banks.


Imagine Mr Smith, who banks with Lloyds Bank, transfers £20 to Mr Jones, who banks with Barclays Bank. According to the 'tokenists', this can be represented by the accounting entries shown below in Figure 1.

Two double entries representing a bank transfer
Figure 1. Two double entries representing a bank transfer*
* Opening balances (OBs) are all £100 for simplicity, but could be anything of course.

The bottom double-entry transfers deposit tokens (liabilities between banks) and the top transfers reserve tokens (assets between banks). Reserve and deposit tokens are never mixed since they are of different ‘types’.

But there is a glaring hole in the accounting, as anyone who understands double-entry bookkeeping will spot straight away. This is that the double entries are across different sets of accounts, which is wrong, as shown in Figure 2 below.

Wrong double entries representing a bank transfer
Figure 2. These accounting double entries are wrong

In double-entry accounting, which all banks use, every credit must have a corresponding debit (or debits totalling the credit), and vice versa, within a set of accounts. Both Lloyds’ and Barclays’ sets of accounts would break this rule.

The correct double entries are shown below in Figure 3.

Correct double entries representing a bank transfer
Figure 3. These are the correct accounting double entries

These are the double entries that banks coordinate between each other for the transfer, including the central bank. If something goes wrong, the entries can be reversed. There is no situation in which any set of accounts can be unbalanced, and settlement can still take place at a later time if necessary.


When someone transfers their money via a bank transfer, money, not tokens, is transferred. Customer deposit accounts are accounts of money, not tokens, as are central bank reserve accounts. Cash can be withdrawn on either if required, and money is interchangeable between these accounts because it is the same money.


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