How does banking compare to alchemy? Professor Mervyn King explains

Alchemy essentially reflects the idea that there's no really intrinsic value to many of the things we think of in terms of money and banking For paper money it's just paper, but we believe it has value because we trust the people who issue it, and the same with banking we put money into a bank, it belongs to us we think, we think we can go and take it out whenever we want and up to a point we can, but if all of us decided to go to a bank and take our deposits out the money isn't there

It's been lent, long-term in a liquid form So, there is a sense of alchemy about the way the banking works in trying to pretend that you can convert very safe short-term deposits into long-term risky loans, and you can't That's a- it's an element of alchemy, now the question is, can we manage this in a way that gives us the advantage of our traditional banking system without giving the concern that if people lose trust or confidence in banks they may decide to go to the bank and take their money out, and run away from the bank bringing the banking system down


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