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The Great Banking Shoebox Swindle

10:50 am - July 19th 2012

by Frances Coppola    

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It’s morning in the charming little village of Britham. A man – let’s call him John – goes into his local bank.

“I want to borrow £1000”, he says.

“Let’s see what we can do”, says the bank manager.

After close inspection of John’s payslips and a few phone calls to local shops and tradesmen to check that John has always paid his bills and paid for his goods, the bank manager agrees to give him the loan.

“l’ll just sort that out for you now”, he says.

He disappears through the door into the back office. Once in the office, he gets out a shoebox. Into the shoebox he puts…..well, we’ll find out later what bank managers put in shoeboxes. Then he seals the box and stamps it with an official bank stamp saying “£1000”. He takes the box back out to where John is waiting.

“Here you are”, he says. “Here’s your loan”. He and John shake hands, and John leaves, carrying his shoebox.

John takes his shoebox to the bike shop to buy his son a bike for his birthday. The bike he wants is on sale at £500. John hands the shoebox to Fred, the bike shop owner. “There’s one thousand pounds,” he says. “Can you give me change?”

Fred doesn’t have £500 cash in the till, but he has another shoebox with an official bank stamp saying “£500” that someone gave him earlier. So the two swap shoeboxes.

John takes the new shoebox to the grocer, where he buys his week’s shopping and hands the shoebox over in payment. Muttering beneath his breath “people seem to think I’m a b***y bank!”, Bob the grocer gives him three shoeboxes. each marked “£100”, plus £80 in cash. Bob then takes the £500 shoebox to the bank. “Can you look after this for me, please?” he says.

Armed with the shoebox that John gave him, Fred goes to the wholesaler to replenish his bike stocks. Outside the wholesaler’s warehouse is a large sign saying “CASH ONLY – NO SHOEBOXES”. Fred is slightly puzzled by this, but doesn’t think anything of it. After all, the shoebox contains £1000, so all he has to do is open the box…..

Opening the box takes him a while, because whoever sealed it used industrial-strength glue. And all the while the wholesaler watches pityingly. He’s seen people do this before.

Eventually Fred manages to get the box open. And inside is – nothing.

“I’VE BEEN SWINDLED!” he shouts. John is nowhere to be seen, but the bank that issued the shoebox is still open. He runs in. “This box is empty. Where’s the money?” he cries.

“I’m really sorry, sir”, says Joe the cashier. “Our back office must have forgotten to put in the money. If you will take a seat, I’ll go and get it for you.”

Slightly relieved, Fred sits down. Joe runs through to the back office.

“Someone’s opened their box!” he cries. Everyone stops whatever they were doing. The manager turns ashen.

“How much?” he asks.

“One thousand pounds”, says Joe.

“Crikey”, mutters Stacey the clerk. “We’ll never raise that much from a whipround!”

She is indeed correct. The amount they manage to raise by emptying their pockets is £100, mainly in used £10 notes.

Joe rings round the banks in the nearby villages to see if he can borrow the £1000, but none of them want to know. Apparently a bank in Pondland ran out of money and went bust, and now none of the banks will lend money to other banks in case those banks also go bust and they lose their money.

“I’ve got a better idea,” says the manager. “Give me one of those £10 notes”.

He runs out to the street. Opposite is a stately-looking shop called “Britham’s Printers”. Its owner sees him coming.

“How much is it this time?” he says.

“A hundred of these, and I need them quickly!” He hands over the £10 note.

The printer goes out to the back of his shop, where there is a printing press. He runs off one hundred £10 notes.

“Here you are,” he says. “I need it back tomorrow, though, and I’m keeping your £10 as payment. Oh, and I need some security. How about that gold watch you’re wearing?”

The bank manager gives him his gold watch and walks back to the bank carrying the new banknotes. He goes in by the side door so Fred doesn’t see him, and he gives the notes to Joe. Joe carries the bundle of notes through to the front office where Fred is waiting.

“Here’s your money, sir,” he says. “I’m so sorry about that”. He picks up the shoebox, carries it through to the back office and puts it on the shelf.

Fred walks home a happy man. The bank manager is not so happy, though. He has to raise one thousand pounds by the end of next day or he loses his gold watch. And the printer doesn’t accept shoeboxes – after all, he knows what is in them.

The next day, Fred takes his £1000 in new £10 notes to the bike wholesaler and hands it over in return for a consignment of bikes. The wholesaler takes the £1000 to the bank and hands it in in return for a shoebox stamped “£1000”. After all, shoeboxes you get directly from the bank must be ok. It’s only shoeboxes from customers that could be dodgy. Can’t be too careful these days! Mind you, that shoebox is a bit battered – looks as if it’s been opened before, maybe?

The bank manager takes the £1000 cash to the printer and hands it over. The printer returns his gold watch to him.

“See you tomorrow”, he says.

But next day, the headline on the local newspaper reads, “LOCAL BANK RUNS OUT OF MONEY – HAS TO GET EMERGENCY FUNDING”. It seems that when she got home, Stacey told her husband about the emergency printing yesterday, and her husband went to the pub that evening…..anyway, somehow the story got out and now it is all over the local papers. Bob the grocer sees this and thinks, “Oh heck, I put £500 into that bank yesterday! I’d better get it out!”

Outside the bank is a VERY long queue……

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About the author
Frances is an occasional contributor to Liberal Conspiracy. She spent 17 years of her life working at a senior level in banks, but now is a professional singer, singing teacher and image consultant. She blogs here.
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Reader comments

1. Luis Enrique

what’s with the headline? I’m not sure what the point of this parable is, but it looks to me like something about the nature of fiat money and banking. Where is the swindle? Why are pieces of paper any more or less of a sensible currency than empty shoe boxes? What do you want inside your shoe boxes, metaphorically speaking – gold?

This is not directed at you Frances, but the papers and blogs are full of people that have discovered banks create money or that money in a bank account is really like an empty shoe box, a promise that needs fulfilling, and are running around in horror like headless chickens without thinking about why< things are like that and what the alternatives are.

I'm not sure if you read these posts and they inspired your parable Frances, but the great Steve Randy Waldman has been writing on this topic recently

and JW Mason digs out a relevant quote from Minksy:

"Everyone can create money; the problem is to get it accepted."

the main point SRW makes, as identified by Alphaville


…. it’s first important to understand what traditionally drives bank profitability …. it’s not, contrary to popular belief, their ability to create credit. Indeed, as we have also argued, any reputable institution or individual has the ability to do that. No … the power of banks actually lies in their more unique ability “to issue liabilities that are widely accepted as near-perfect substitutes for whatever trades as money despite being highly levered.”

– the whole point of the banking industry is that why I hand over my shoebox (my debit card) and shoe boxes are shuffled around in the background between me and shopkeepers, everybody is confident that when push comes to shove, “whatever trades as money” – those green bits of paper – will be forthcoming if and when demanded.

2. Luis Enrique

importantly (and again, not directed at you Frances) all these people getting exciting about bank money creation don’t seem to understand that this:

“A hundred of these, and I need them quickly!” He hands over the £10 note.

is the bit that banks actually cannot do. Only the central bank can print banknotes. Banks create money because bank balances are effectively treated as money, but if they need to come up with hard cash they cannot print it, they either have to sell assets in return for it, or they need to borrow it (from the central bank, from depositors, whatever).

3. Luis Enrique

btw Frances, you may have already seen this, but if you want to binge on hardcore banking theory, check out the current series of posts here:

4. Frances_coppola

Hi Luis,

I have read all of those posts. The Interfluidity ones are wonderful and they probably did inspire me to some extent, but mainly this post was sparked by a very long and boring debate I’ve been having with Positive Money over the last few days. Actually it’s the second post inspired by that debate – I wrote one the other day called “Do we really care who creates money?”

The point I’m making is that anything can be a medium of exchange as long as people trust what it represents. “Shock, horror” about money creation, and arguments about whether banks do or don’t create real money, completely misses the point. It is the breakdown of trust that is the real issue in banking today. When people don’t trust the creators of shoeboxes, money circulation in the economy stops and everything grinds to a halt.

The places in this little fable are metaphors, of course, and the clue is in the names. What do you think “Britham’s Printers” represents? The printing of banknotes is completely legitimate in this story.

5. Luis Enrique

Frances – aha! I getcha.

Hopefully although trust in banking is low, it’s not so low as to think banks cannot come up with the hard stuff when we need it – particularly because we can expect central banks to ensure they can.

oh, while you’re here, here’s an argument that I think deserves to get much more attention

everybody is thinking about what regulators can do to fix banking – it might be that the real action will come about because shareholders will want to break them up (analogous to asset stripping a conventional firm)

I’m confused (generally, but also by this extended metaphor). It seems (to me) to be a critique of fractional reserve banking, but I thought that you were broadly in favour of fractional reserve banking (based on previous blog posts of yours). As I say, I’m confused. I’ve probably failed to grasp the metaphor. 🙂

A rather pleasing metaphor though. I’m half minded to try and buy a bicycle with one of the many Berghaus and Karrimor shoeboxes I have laying around. They must be worth A LOT. :-p

7. Frances_coppola


I am generally a supporter of fractional reserve banking. I maybe should have put “swindle” in quotation marks, as the title confused Luis too. In a swindle, someone loses out, don’t they? But no-one has lost out in this tale. So even though the empty shoeboxes are a con, it doesn’t matter because people are nonetheless able to use them as a medium of exchange. They have value because people can use them, not because they have intrinsic “worth”.

The point is that as long as no-one asks what is actually in the boxes, money circulates through the village economy, people can buy and sell the stuff they need and the economy flourishes. When the emptiness of the box is disclosed, the circulation of money for productive uses ceases and there is a dash for safe assets, notably cash. Which is what we are seeing at the moment, I think.

If I were to extend this further, I would change “Britham’s Printers” into “Britham’s Boxes”. Banknotes are only a different type of box, after all – and it also provides the card and glue to make the shoeboxes that the banks lend out.

I’d like it known that the following comments where not known to be at the time I posted @6. I’m confused, not a complete idiot. 😉

@4 Frances Coppola

The point I’m making is that anything can be a medium of exchange as long as people trust what it represents. “Shock, horror” about money creation, and arguments about whether banks do or don’t create real money, completely misses the point. It is the breakdown of trust that is the real issue in banking today. When people don’t trust the creators of shoeboxes, money circulation in the economy stops and everything grinds to a halt.

That explains it. This is strongest argument against the so called ‘benefits’ of a commodity currency in my view. It’s rather circular to uphold gold as the virtue that some commodity money advocates do. Commodity currencies HAVE collapsed before (e.g. the bi-metal standard in the USA, the silver standard in the UK, etc…) and seems to me that such commodity backed currencies are just as prone to a loss of trust as fiat currencies. It might take people a little longer to realize that they can’t eat gold, but they get there eventually.~ 😉

I can understand concerns vis fiat currency being printed for short term political gain, but that can be restricted relatively easily if the imposition of a regulatory technocracy like the MPC doesn’t frighten you too much. I have to say, I rather approve of full reserve banking and Positive Money’s proposals. Although your earlier arguments vis a disruption of the flow of wealth from old to young (under full reserve banking) is compelling reading Frances.

@7 Frances_Coppola

If I were to extend this further, I would change “Britham’s Printers” into “Britham’s Boxes”. Banknotes are only a different type of box, after all – and it also provides the card and glue to make the shoeboxes that the banks lend out.

Well quite. I was certainly minded of the awkwardness of the forerunners to modern bank notes. If I read my banking history correctly, you’d put your money in a goldsmiths vault and they’d issue you a single promissory note to the same value. I imagine getting change from a grocer would be an equally awkward affair back in the early 19th century (?), with a plethora of random promissory notes and loose change forming your change if you ever had the temerity to use a absurdly large promissory not to pay for goods and services. 😉

10. Luis Enrique

what are the odds this post got published here because somebody at LC towers thought the message was: banking is a swindle.

11. Planeshift

“When people don’t trust the creators of shoeboxes, money circulation in the economy stops and everything grinds to a halt. ”

Actually i’d say that trust in banking – certainly trust in the bits most people don’t really understand – has already collapsed. But the vast majority of people still get their wages paid directly into an account, use direct debits to pay bills and buy goods using debit/credit cards.

I think it is not really about trust, as although one bank having adverse publicity about its viability still creates a run on the bank, all that will happen is savers withdraw their money from bank X, and put it into bank Y instead. Use of banks is simply so socially ingrained that people simply cannot imagine being able to function without them. Even the biggest banking sceptics simply wouldn’t be able to advocate keeping cash under the bed with a straight face.

12. Luis Enrique


in this context, the trust in question is that if we get our wages paid directly to the bank, as you point out we all still do, we trust them to hand over hard cash when we ask for it at the counter or ATM machine. Likewise a shop will accept an electronic payment or a cheque from a bank because they trust down the line it will be honoured with central bank money if they ask for it – they trust that the bank will be able to fund its promise. I don’t think that trust has collapsed. I think trust has collapsed with regard to other aspects of the system.

13. Planeshift

@12 – I think you’tre right about where the collapse in trust is, but I suspect natwest customers may have a different view about trust in the basic functions of banking in light of recent events. The question is how many of them will switch as a result – and I’d guess at least 99% of their customers will probably still use natwest because it’s so ingrained with our lives. Most people still stay with the same bank for life despite a great deal of effort made at making switching accounts easy and normal.

Funny this. Years ago I used to work in a business where large amounts of cash were handled. We used to come across packets that were labeled £10,000 or whatever, with a bank seal on them. We were instucted that these packets were never to be opened. I remember quite clearly my trainer explaining that a packet could contain a bundle of newspaper between 2 x £50 notes, but as long as the packet was intact with the seal on it, then it didn’t matter.

The business I worked in was a casino.

15. Frances_coppola

11 Planeshift

Interestingly I discussed the matter of hoarding cash in my post earlier this week. But I was talking about Africa and other poor countries, where far fewer people have bank accounts and people do indeed stuff mattresses. Fifty years ago we were the same – most people were paid in cash and many people saved cash. Now we find it difficult to imagine not using banks, but that is first world thinking. In the rest of the world they find it hard to imagine USING banks the way we do. If you’re interested, my post is here:

FTAlphaville have also been writing about alternatives to Western-style banking in developing countries. This one is good:

The World Bank also has lots on the subject of the unbanked and new developments in non-bank payments platforms and savings vehicles.

16. Richard W

The real loss of trust that is afflicting our economy is the loss of trust banks have in each other. Sure, people will say they hate banks and do not trust them. However, revealed preferences will determine whether that is true or just a reactionary response to headlines. The elevated money demand that is reducing economic activity is clearly not related to trust in money. In fact, since money and money substitutes are in demand it is the opposite.

I don’t think the reason why we accept money has value and is money at all has much to do with trust. We accept that pieces of paper have value because we believe that other people will accept it has value. Simple as that, and why it works as a medium of exchange. We do not need to trust the person who gave us the medium of exchange and we do not need to trust the person we pass it on to.

I see more confusion between what is money and credit than almost anything in recent years. A loss of trust in people’s ability to settle debts is obviously going to subdue economic activity. For example, firms totally unrelated to banking create credit all the time in their interactions with each other. Unless they are operating on the basis of cash on delivery they are creating credit. However, if they have doubts whether debts will be honoured that type of credit creation will decline and with it economic activity. Therefore, the increased money demand transmits itself to the economy by making both parties worse off. Increased money demand should be met with increased money supply otherwise economic activity will be suboptimal.

This was a really interesting post by Izabella, which just goes to show that money substitutes can be created by anyone if people are willing to accept it as money.

17. Richard W

You beat me to it, Frances.

18. Frances_coppola

Richard W

Yes, that’s a fair point and related to my comment above that shoeboxes have value only to the extent that people can use them as a medium of exchange – they have no intrinsic worth of their own. If people stop accepting shoeboxes as payment, they are worthless.

One of my recent posts was on the subject of credit creation by small businesses – well, my business, actually. It’s called “I am a bank”:

By way of comparison, readers may be interested in this (seminal) academic paper written just after WW2 by RA Radford on: The Economic Organisation of a POW camp:

Another illuminating comparison: Joan and Richard Sweeney on:

Monetary Theory and the Great Capitol Baby Sitting Co-op Crisis:

21. unemployed guillotine operator

they say if you want to rob a bank, these days “you have to own one….!!!
of/ on topic – try a bit of this ….

mankind has/is being shafted, without the KY for a very long time.
Barclay’s rigging rates -chump change
HSBC cartel laundering- CIA on the job since Vietnam/ uk since opium wars.
HSBC laundering money for terrorism- Rothschild s on that one, since1815
JP Morgan lost $4.8 blln” hrm, they say- more like $10+.the elephant in the room
MP,s – gangsters,looters,fraudsters,perverts in suits-.snakes and vipers.

judges & courts- corrupted and bent by EU law, try

military being sent down the river, 20,000 of to the dole.
blue bottles! erm” rozzers…. of the street,”5,800..

local council chiefs on the take- old as time..its self

and now 4GS-the very same,collective of fools who wanted the! 4gs;police their own courts and private prisons -to go with their flag and anthem,” remind you of anything !!!!”will let you do your home work on that.

so whats all of that got to do with the, Great shoe box banking scandal.

we are all absolutely slaves to central banks-just, bigger empty boxes…
. and this is from the yanks!! go figer


22. TorquilMacneil

‘Fractional reserve banking’ is just banking, isn’t it? Anything else would just be some sort of safety deposit box.

Re Sheffield City Council, try this news report from the BBC website in July 2006:

The South Yorkshire Trading Standards Unit is to close on 31 July over a £14m shortfall in its accounts.

The discrepancy came to light after the death of the unit’s general manager in December 2005 and is being investigated by the Serious Fraud Office. . .

The missing money will be covered by the four local authorities, in Sheffield, Barnsley, Doncaster and Rotherham, on the basis of population.

Sheffield City Council’s chief executive Bob Kerslake said the councils would also continue the statutory services provided by the unit.

The South Yorkshire Trading Standards Unit was managed jointly on behalf of the four participating councils by Sheffield City Council, according to this report in the Local Government Chronicle:

For more on the missing £14 million at the South Yorkshire Trading Standards Unit, try this press release by the Serious Fraud Office on 25 February 2010:

Three men have today been sentenced for their role in dishonest activity committed at the now defunct South Yorkshire Trading Standards Unit (SYTSU) in Sheffield. The case came to the attention of the SFO, following the death of the head of SYTSU, Michael Buckley. . . In the last series of interviews with the Serious Fraud Office and South Yorkshire Police, the defendants all chose to exercise their right to say “no comment” to all questions put to them.

@22 TorquilMacneil

“‘Fractional reserve banking’ is just banking, isn’t it? Anything else would just be some sort of safety deposit box.”

Not necessarily. Under the full reserve systems I’ve read of, whilst money deposited into a current account would be equivalent to money stored in a safety deposit box or a mattress (as it should be, I contend), money deposited into a savings account would be surrendered to the bank/fund manager for a period to be invested on the savers behalf (again, as it should be). Of course this calls for the saver to surrender all/most/quick access to those savings for a time, but that’s what savings are all about (you are rewarded, with interest, for forgoing access to your money for a time, whence said money is used by the bank and it’s debtors). The current system presents a false sense of security, in that people are lead to believe that the £££s in their savings account represent money per se. When in reality they represent a mere promise, by the bank, to repay said £££s should the saver chose to withdraw £s or close their account (within terms and conditions). In reality, at any given time, fractional reserve banks lack the ‘liquid’ money to meet those promises (hence the terror that bank runs strike). In contrast, it’s explicit to full reserve banking, that your savings are not ‘yours’ whilst surrendered to the bank/fund manager (though the latter is liable to repay you in-line with the terms and conditions of your savings account or bond – in essence, you own a promissory note/certificate, not money) and that instant/quick withdrawal of funds thereof is therefore an unreasonable expectation and beyond the scope of your bank/fund managers liabilities per se.

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