The way it was explained to me when I asked about this on Steve Keen's blog, where transactions between clients of the same bank are concerned, transfers between deposit accounts can be made to settle goods exchanges without any involvement of reserves. The reserves only become a factor when settlements between banks have to be made. So those deposits can serve as money already just fine at the point of their creation, i.e. when no reserves are drawn in to "back" them.
If it's within the same bank, then it's just entries in that bank's database. Nothing else is involved. It's all handled electronically. It makes no difference at all to the bank's overall balance sheet.
Here's another explanation of how to interpret "loans create deposits" that was given to me by a post-keynesian economist:
I don't think that's right. One thing we haven't said much about is cash on hand. If the money is in the ATM, it is cash on hand for the bank against day to day transactions. If the money is in your pocket, then it is cash on hand against day to day transactions. Nothing has changed as far as the money supply is concerned. The banks have the same deposits, the same reserves, and the system has the same cash on hand. What has changed is that you will have to pay some fee for the money you have borrowed from the bank.
The monetary base has not changed.
The following day the bank has to refill the machine from some other account and the transactions balance.
Now what if you borrow money and then deposit it?
One thing that we haven't talked about, because I'm fairly sure that over time it has little real impact on the rest of the equation, is the propensity for holding cash. Now assume every American, on average, holds $100 in cash on any given day. Some will be holding nothing, others will be holding thousands. But we'll call the average $100 for discussion. Does that hold true every day? No. The day after payday people will have more cash than the day before payday. People will have more cash in December than in February. But those variations don't matter. What matters is the average and the long term trends. One thing the FDIC does in guaranteeing deposits is prevent bank runs. By doing that, it essentially eliminates the hysterical actions of stripping clean bank accounts and holding all the money in cash. So the propensity for holding cash does change, seasonally, on a schedule, and over time with changes in the economy. But the seasonal and scheduled changes are knowable and predictable. And any changes over time can be tracked and the CB can factor them in to their equations.
It's not talked about much, because frankly, it rarely does anything to really talk about.
Now assume a situation happened where the average cash on hand for Americans suddenly went from $100 to $150. That would make an impact. And the Fed would have to take actions to offset that impact. Banks and many large companies now in the wake of the financial crisis are holding a lot more cash. And so the Fed has had to act to change the money supply to compensate for that.
Would this be an appropriate place to ask for advice on building a credit rating? I've always been very prudent with my money, never spending funds I didn't have. Both of the cars I've owned were purchased outright with cash, from my savings. (They were 'used', naturally.) Although this has helped me avoid getting into debt trouble, I can't imagine I have much a credit rating, either, since I've never used credit cards or taken out a loan, the notable exception being my student loans which I'm faithfully paying for. My bank (PNC) offers credit cards, and I've been thinking about taking one out and then using it for minor internet purchases, then paying off the balance immediately. Would this be an effective approach to building my credit rating? I'd like a strong one for when I apply for an apartment of my own, or -- in the far future -- start looking for a small home.
Sorry, I don't really want to get into personal finance. I'm not expert in the field and I don't want want to lead you the wrong way. By the same token, I'm trying to keep this thread fairly narrow and just discuss money itself, because I want to dispel some myths that have been floating around about it.