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> But I'm currently visiting Turkey, and when I swipe my card Chase definitely does not "owe the coffee shop a bit more", Chase has absolutely no relationship w

> But I'm currently visiting Turkey, and when I swipe my card Chase definitely does not "owe the coffee shop a bit more", Chase has absolutely no relationship with the Turkish coffee shop I'm sitting in. Admittably I made some shortcuts. Obviously chase does not likely have a relationship with that Turkish coffee shop, but it does have a relationship (which may be complex, involving visa, mastercard etc.) with the bank of that coffee shop. So practically Chase says that now that you paid your coffee in turkey, we owe you a bit less, but at the same time we as a bank have agreed to owe that amount of dollars to the Turkish bank, who the on owes to the coffeeshop owner some turkish lira. (and someone makes also the currency conversion there). The banks have between themselves some credit/limit arrangement that they do not need to actually start moving "real" central bank money [1] every time I buy a coffee. At the end of the day, most of the time the customer payments should not have a systematic drift (if there were, it would be called bank run), so banks just work within these credit limits. It may sound like turtles all the way down, but that is exactly what the modern financial system is. Credit all the way down. There is very little else than credit in the system. [1 ]which the turkish bank does not even have access but that is one more complexity layer I ignore here...

brian_cloutier 8y ago
Okay, I've done some more research and I'm much less sure than I previously was. I mean, I'm now pretty sure you're right: at the time of the transaction the only thing which is transferred is an IOU. It still seems to me, however, that at the end of the day there's a net settlement process which happens at the central bank and moves real central bank money between the banks as a result of your transaction. (I'm can't figure out what the international equivalent is but assume there is one) Do you have any links I could read which say otherwise? > At the end of the day, most of the time the customer payments should not have a systematic drift (if there were, it would be called bank run) I don't think this would constitute a run, I think it just results in the banks shipping central bank money to each other to settle the difference. I'm finding it surprisingly difficult to Google this, would love any pointers you can give.
- beefield 8y ago
  > It still seems to me, however, that at the end of the day there's a net settlement process which happens at the central bank There is a daily settlement process via central bank, but you do not need to settle daily. Imagine only transaction today was me sending 10 bucks to your bank account. Your bank would likely say that hey, pay that 10 bucks (plus interest) some day later when there is a bigger payment coming. And by tomorrow someone from your bank paid to my bank 10 bucks, so then there was no need to do transfers. Banks do run credit lines against each other. Obviously, if I were to send one hundred million bucks, your bank would cough and say that okay, let's see when the money is at our central bank account.... > I don't think this would constitute a run, If there is a long term systematic and significant outflow of money from a bank, that is definitely a bank run. Banks can't create central bank money, so if my bank needs to send daily money to your bank and is not receiving anything back, it needs to start liquidating some of the assets. > I'm finding it surprisingly difficult to Google this, would love any pointers you can give. Unfortunately I have found very little good information on money, these thoughts are just based on lots of thinking on the fascinating thing called money... Most sources belong to two camps: 1. Basic , naive economics that is saying that money is created when I deposit money and then bank lends it to you so that you have the cash in hand and I have the money in the account so the amount of money is doubled in society 2. The ones who think they are smart and say that hey, that naive theory is false. Actually banks just create money with double accounting wizardy and loans. Or something like that. The first one fails to capture the technical details of money creation and the second ones fails to capture the economics.

brian_cloutier 8y ago

Okay, I've done some more research and I'm much less sure than I previously was. I mean, I'm now pretty sure you're right: at the time of the transaction the only thing which is transferred is an IOU. It still seems to me, however, that at the end of the day there's a net settlement process which happens at the central bank and moves real central bank money between the banks as a result of your transaction. (I'm can't figure out what the international equivalent is but assume there is one) Do you have any links I could read which say otherwise? > At the end of the day, most of the time the customer payments should not have a systematic drift (if there were, it would be called bank run) I don't think this would constitute a run, I think it just results in the banks shipping central bank money to each other to settle the difference. I'm finding it surprisingly difficult to Google this, would love any pointers you can give.

beefield 8y ago
> It still seems to me, however, that at the end of the day there's a net settlement process which happens at the central bank There is a daily settlement process via central bank, but you do not need to settle daily. Imagine only transaction today was me sending 10 bucks to your bank account. Your bank would likely say that hey, pay that 10 bucks (plus interest) some day later when there is a bigger payment coming. And by tomorrow someone from your bank paid to my bank 10 bucks, so then there was no need to do transfers. Banks do run credit lines against each other. Obviously, if I were to send one hundred million bucks, your bank would cough and say that okay, let's see when the money is at our central bank account.... > I don't think this would constitute a run, If there is a long term systematic and significant outflow of money from a bank, that is definitely a bank run. Banks can't create central bank money, so if my bank needs to send daily money to your bank and is not receiving anything back, it needs to start liquidating some of the assets. > I'm finding it surprisingly difficult to Google this, would love any pointers you can give. Unfortunately I have found very little good information on money, these thoughts are just based on lots of thinking on the fascinating thing called money... Most sources belong to two camps: 1. Basic , naive economics that is saying that money is created when I deposit money and then bank lends it to you so that you have the cash in hand and I have the money in the account so the amount of money is doubled in society 2. The ones who think they are smart and say that hey, that naive theory is false. Actually banks just create money with double accounting wizardy and loans. Or something like that. The first one fails to capture the technical details of money creation and the second ones fails to capture the economics.