Can the price of legal tender be affected by the quantity of bank deposits in the economy? Why do people not differentiate? What is the difference between a bank deposit and actual cash? There is no difference which would make (legal tender) cash more valuable. Why would cash be more valuable than bank deposit liabilities?
If bank credit is guaranteed by the Government, there is no reason to think that cash is any more valuable than bank deposits.
The deposit guarantee makes bank deposits no less valuable than cash; if cash has value they for what reason would bank deposit not have the same value? Does cash have intrinsic value higher than bank deposits? For what reason would cash be valued higher?
Then, cash banknotes (legal tender) are no more valuable than guaranteed bank deposits.
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