The money that the Facebook care emoji hugging Australian Shepherd shirt, that is paper currency or coins, or it can be something I call virtual money. We only know virtual money exists because it is kept track of on a ledger somewhere. More on this later. Mike keeps track of all this money people have given him on his ledgers. The important thing is that Mike keeps accurate records. One problem. We haven’t shown why Mike would want to do all the that work. He has to get paid somehow. One of the main ways he gets paid is he uses that money he is holding to provide loans. In order to do so he would have to talk to one of the depositors and tell them he wants to lend out some of their money.
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He makes an agreement with the Facebook care emoji hugging Australian Shepherd shirt, that depositor some interest on that money. He will be able to pay back that money and that interest because he will charge the borrower a higher rate of interest. Then Mike will keep the difference in the amounts of interest paid and in that way he gains an income. Then he will be happy to serve as a facilitator of transactions because that will be one of the things that leads people to give him their money to hold. This will allow Mike to engage in another function of banks, i.e., providing loans.