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What Actually Happens When You Tap Your Phone to Pay
When you tap your phone to buy coffee, no money actually moves. Your bank just adjusts its IOU to you, and later settles with the merchant's bank through central bank reserves. In this episode, we trace the full path of a digital payment — from the cryptographic token sent by your phone to the final settlement on Fedwire — and explore what gives this entire system legitimacy. Drawing on the Bank of England's framework of money as a three-layer stack of IOUs, we examine how tax obligations, legal tender laws, and network effects create the foundational commitment that makes digital money work…
The skinny
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