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> The value of a country's currency = How much stuff it produces / How much money it prints. The value of a currency is how much people are willing to pay to h

by mo_42 2y ago

> The value of a country's currency = How much stuff it produces / How much money it prints. The value of a currency is how much people are willing to pay to have the other currency. For example, if Japan is importing many goods and services, they need to pay them in USD and so they have to buy USD on the market. > Both, Japan and the US are increasing their monetary base by what, 10% per year? The monetary base is not strictly connected to the money in the economy. Most of the money is created by commercial banks when they hand out loans. So the entire money in the economy can shrink (people paying back more loans than they), while at the same time the central bank increases currency. For reference: https://www.bundesbank.de/resource/blob/654284/df66c4444d065a7f519e2ab0c476df58/mL/2017-04-money-creation-process-data.pdf https://www.bundesbank.de/resource/blob/654284/df66c4444d065... https://www.bis.org/review/r180118c.pdf https://www.bis.org/review/r180118c.pdf

lotsofpulp 2y ago
>if Japan is importing many goods and services, they need to pay them in USD and so they have to buy USD on the market. Why does Japan need to pay them in USD?Because, as ArtTimeInvestor wrote, > but the US still seems on top of its game. Whatever the US sells, whether it be purely business/technology or even commingled with military resources, a lot of people in the world are interested in buying it.
ArtTimeInvestor 2y ago
if Japan is importing many goods and services, they need to pay them in USD Yes, and for this purpose, the Dollar is among the "stuff" the US produces: A currency accepted in many places. Most of the money is created by commercial banks Say there is a new bank which has no central bank money, no deposits, nothing. First customer walks in and gets a credit of $100. Now the customer wants to pay these $100 to someone who uses a different bank. What happens?
- JumpCrisscross 2y ago
  > First customer walks in and gets a credit of $100. Now the customer wants to pay these $100 to someone who uses a different bank. What happens? The first bank credits the account the different bank has with it in the amount of a hundred dollars. This involves updating a spreadsheet. "Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money" [1]. [1] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
  - ArtTimeInvestor 2y ago
    That would only work if the two banks have an agreement. No established bank would make such an agreement with a bank that has no assets.
    - JumpCrisscross 2y ago
      > That would only work if the two banks have an agreement Yes. This is why not every pair of banks supports direct transfers. > No established bank would make such an agreement with a bank that has no assets Yes, it's a hypothetical you created.

by mo_42 2y ago

lotsofpulp 2y ago

>if Japan is importing many goods and services, they need to pay them in USD and so they have to buy USD on the market. Why does Japan need to pay them in USD?Because, as ArtTimeInvestor wrote, > but the US still seems on top of its game. Whatever the US sells, whether it be purely business/technology or even commingled with military resources, a lot of people in the world are interested in buying it.

ArtTimeInvestor 2y ago

if Japan is importing many goods and services, they need to pay them in USD Yes, and for this purpose, the Dollar is among the "stuff" the US produces: A currency accepted in many places. Most of the money is created by commercial banks Say there is a new bank which has no central bank money, no deposits, nothing. First customer walks in and gets a credit of $100. Now the customer wants to pay these $100 to someone who uses a different bank. What happens?

JumpCrisscross 2y ago
> First customer walks in and gets a credit of $100. Now the customer wants to pay these $100 to someone who uses a different bank. What happens? The first bank credits the account the different bank has with it in the amount of a hundred dollars. This involves updating a spreadsheet. "Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money" [1]. [1] https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
- ArtTimeInvestor 2y ago
  That would only work if the two banks have an agreement. No established bank would make such an agreement with a bank that has no assets.
  - JumpCrisscross 2y ago
    > That would only work if the two banks have an agreement Yes. This is why not every pair of banks supports direct transfers. > No established bank would make such an agreement with a bank that has no assets Yes, it's a hypothetical you created.