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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 c
by 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 agoThat 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.