The lion kingdom has sometimes wondered how stock brokers execute trades as fast as they do & seem to always magically satisfy the limit orders, unless the limit price is way off. The reason is probably because they don't trade real shares. They aggregate a bunch of trades from a bunch of customers, with each trader getting the most optimum price possible for imaginary shares. Some time later, the aggregated trade is executed with the real shares at the true price.

If customers buy a stock, the broker takes whatever the bid was during the limit order but doesn't really buy the stock at once. They aggregate many buys, sometimes taking more or less money from each customer. Then, the broker buys a large chunk of physical shares at whatever true price the stock is later. If the true price falls, the broker makes money. If the true price rises, the customers make money.

Usually, some customers bid too high & some bid too low, with the broker executing somewhere in the middle & not making a lot of money. This is the essence of short selling, but it's really how all transactions work.

Through short selling, customers who bid too low can still get shares that they couldn't get if their orders weren't aggregated with customers who bid too high. The aggregation of many bids that are too low & too high tends to stabilize price fluctuations. Short selling also speeds up transactions, since they don't have to go all the way to the true owners of the shares.

If the government completely banned short selling, we'd all have to buy real shares instead of aggregating our transactions. It probably would destabilize prices. The trick is when the real stock falls dramatically below the customer's bidding price & the broker makes a massive amount of money, the customers get pissed. When the real stock rises dramatically above the customer's bidding price & the broker loses a massive amount of money, the government has to print money.