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I think the OP is saying that you can have a situation where the short term demand for dollars outstrips the supply available at that given time (think in terms
by zhdc1 5y ago
I think the OP is saying that you can have a situation where the short term demand for dollars outstrips the supply available at that given time (think in terms of hours or days). This could lead to a sharp but short increase in the value of the dollar, since there's only a limited, albeit extremely large, amount available on the market at any given time.
- hangonhn 5y agoThe bank needing the currency asks the central bank for the extra currency and it’s simply a number in a “database” somewhere. It can be done rather quickly.
- chii 5y agoit's not the bank, but the borrowers who need the currency. So an increase in borrowing from various parties pushes the interest rate higher (the banks would want to charge as high an interest as possible, but no higher than what would make the client move to a different bank for the loan). The central bank could potentially alleviate and increase borrowing without interest rate hikes by allowing the banks themselves to obtain funds from CB at a lower interest (than another bank), and the competition between banks would push the interest rate back down.