I know, my brain has a hard time with the abstractness (I guess that's a word, my spell checker didn't flag it, LOL) I dig these kind of threads tho because they make me study.
Reserves are not just vault cash. In fact, I have an Ally bank account (formerly GM Credit) that is online only. It has no "vault" and no "cash" that I know of, just the money available in ATMs - and it has no ATMs. But it has good enough credit with all the banks (or whatever) that DO have ATMs that I guess the Fed thinks it's OK (Ally pays interest on checking and allows free access to any ATM anywhere, which is why I have it.)
I think (from looking at the fed website mostly) that reserves are more complicated and inclusive of everything on a bank's balance sheet. First, the reserve requirement is either cash in the vault OR deposits at the Fed OR even the credit standing of the bank itself. So even reserves in a broad sense can be IOUs to an extent. Digi-bucks on deposit at the Fed is considered as good as gold, sorta-speak.
"Demand" accounts like checking and regular savings are subject to reserve requirements but timed accounts like money market or Certificates have no reserve (as far as cash on hand goes), since theoretically the bank knows when CDs come due and so can plan to have cash on hand.
But cash is not the only "reserve" a bank has to have, they must be collateralized (loans that are in good standing mostly I'd guess) so they can lay them off against cash in case the have a "liquidity" problem, they must be profitable, they must have enough assets to cover bad loans, and they must not be overly sensitive to a particular risk - home loans for example.
The whole point of the fed was to prevent the panics that caused bank runs and crisis on a regular basis prior to 1900 or whenever. People want to have a "savings and loan" to borrow money from but they also want to have their money available when they want it and the Fed's job is to make sure they can get it. Cash reserves in the vault are a part but a lot of it is subjective P&L gazing. We've all heard of the bank examiner, they score a bank on 5 areas which are mostly about quality of assets, P&L collateralization etc. Their acronym for the areas the score is CAMELS and of course the score is secret - wouldn't want consumers knowing their bank's strength, they couldn't handle it!
The score determines the banks credit rating with the fed and other banks that it might borrow from - which in turn affect its liquidity and in effect, its reserves. (
an article on CAMELS)
(I did find
Bankrate, you tap in your bank and it gives you a score - not the actual Fed score but one reverse engineered from public data so kinda similar. You can also look up your bank on one of the stock analysis sites if it is traded, even my little 2 branch bank is traded on the NASDAQ and it's chart is kinda ugly, LOL, Bankrate gives it 2 stars out of 5, Ally gets a 4 but a 1 on liquidity)
Anyway, I would say after 20 minutes of intense study that completely cashless banking would be entirely possible. Still, I'd guess that people know (whether they KNOW or not) that money in the bank is just an IOU and not the same as
"money" under the mattress.
https://www.stlouisfed.org/in-plain-english
The legitimate object of government, is to do for a community of people, whatever they need to have done, but can not do, at all, or can not, so well do, for themselves -- in their separate, and individual capacities.
-- Abraham Lincoln, Fragment on Government (July 1, 1854)