Yep. The bank that issued the card pays.
When you pay with a credit card, the card network (such as Visa) facilitates the transaction. They charge your bank and give the money to the merchant’s bank. At certain intervals (such as monthly), each bank will pay money to Visa or receive money from Visa according to the amount of transactions.
That’s the simplified version; obviously it’s a lot more complicated.
Sounds like all smoke and mirrors.
They print it out of thin air, kind of like the government. 
Auden said:
They print it out of thin air, kind of like the government.
Thin air only; thick air would be too expensive.
Auden said:
They print it out of thin air, kind of like the government.
Thin air only; thick air would be too expensive.
Thick air is highly taxable.
It’s a loan… The money does not actually “exist” anywhere. The bank has the money and they lend you that money.
BawsNicklaus said:
It’s a loan… The money does not actually “exist” anywhere. The bank has the money and they lend you that money.
It does “exist.” When you are approved for a credit card and accept the offer, the bank is agreeing to loan you your credit limit one month at a time, and you agree to pay it back a month later before accruing interest. The bank is able to issue loans based upon the money they have in savings, checking, finance, etc. accounts they control. By putting your money in an account with a bank, you are trusting that they won’t overspend your money, and that you can reclaim it when you want. FDIC banks are insured by the government that if they do over-lend and can’t repay you, the government will repay you up to $250,000.
BawsNicklaus said:
It’s a loan… The money does not actually “exist” anywhere. The bank has the money and they lend you that money.
The money is real. The issuing bank pays the merchant and the cardholder is responsible for paying the bank back.
@Brayden
Yes, but it looks like they meant physically. But physically vaults would have a lot of locations.
BawsNicklaus said:
@Brayden
Yes, but it looks like they meant physically. But physically vaults would have a lot of locations.
Very little is physical in banking. It’s all electronically transferred from one account to another.
@Brayden
That’s why the question really confused me. There is no master account and it’s literally just a small loan, so technically speaking the money does not “exist” anywhere and is all mostly electronic. The bank pays out that money and hopes you pay it back, but banks do not tend to keep money anywhere.
@BawsNicklaus
There is a master account though. The bank must hold enough in reserve to make the loans it grants to borrowers. Additionally, the investors in publicly held banks may further stipulate stronger liquidity standards than the government does, which has the effect of requiring the bank to keep more on hand. Note that investors stipulating things is indirect as they don’t control the day-to-day operations of the bank. Instead, they can influence policy in their board of directors elections.
The bank must hold enough in reserve.
As of the plague, the reserve requirement is zero. (It turns out that this wasn’t actually the main limiting factor on banks originating loans anyway.)
@Rowen
There is no reserve requirement anymore. Lending is effectively decoupled from deposits. It’s really up to the institution to manage risk. When loans are funded, the money is created whether there are deposits to back it or not.
People often think that the Fed is fully responsible for inflation. The Fed is responsible for controlling inflation. It’s us, though. The commercial banks are the ones creating most of the money.
This is why the Fed raises rates to lower inflation. Higher rates = less loans = less new money being created.
@Floyd
A small book called The Fed Unbound explains this very well.