3 ms·
IOU for what?
by patrickthebold 6y ago
IOU for what?
- omazurov 6y agoFor your goods, services... The U.S. of A. is a debt hub. Banks are also debt hubs but on a smaller scale and dependent on their sovereign.
- baobabKoodaa 6y agoThis sounds more like am argument for USD's utility/value. That doesn't make it an IOU.
- rags2riches 6y agoIt's an IOU for 100 dollars. You can exchange it for other cash IOUs from the central bank. A bank can also exchange it for electronic central bank reserve IOUs.
- zajio1am 6y agoBase money (both cash and central bank reserves) is often emitted through short-term repo operations. If a bank wants some base money (e.g. to put some banknotes in ATMs), it sells central bank some (usually government) bonds with promise to repurchase it after a fixed time limit (e.g. 14 days, done in periodic rounds). That is essentially a lease agreement with different legal detais. So it is essentially an IOU for bonds, just not redeemable in retail (by individuals) but in bulk (by commercial banks). If commercial bank wants 'redeem' some cash (for bonds), then it just acquire less cash in the next round of repo operations.