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Thanks for clearing this up for me! > unless the banks have mutual accounts with each other that they can use to settle instead. So this is just based on trus

Thanks for clearing this up for me! > unless the banks have mutual accounts with each other that they can use to settle instead. So this is just based on trust that the other bank will keep a truthful score of the transfer, and there won't be a dispute at settlement time? If the banks are often willing to trade with each other "on trust alone" like that, I suppose that shows why the Feds can't always directly block dollar transfers, but have to rely on threats of account freezes.

lxgr 5y ago
> So this is just based on trust that the other bank will keep a truthful score of the transfer, and there won't be a dispute at settlement time? Exactly: Either there is trust (and external settlement is not required), or there isn't, in which case banks will usually only credit incoming transfers to their customers once the underlying funds have settled. Practically, trust is a spectrum, and banks might only settle once the outstanding balance in either direction has become too large (that's then called "netting"). > If the banks are often willing to trade with each other "on trust alone" like that Bank balances are ultimately only be useful to their accountholders if they can effect some payment with them. There is therefore also a spectrum of fungibility of USD balances. If you think about it, what makes USD useful is the fact that they can be used to pay for imports from the largest economy in the world. Only very few US companies would be willing to trade with you when being paid in USD balances at some foreign bank that they can't, as one significant example, pay their taxes with.