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> They'll settle that balance somehow (that's a bit complex and irrelevant) Well, no, that's extremely relevant. How is that debt settled? I'm quite certain t

by maratd 13y ago

> They'll settle that balance somehow (that's a bit complex and irrelevant) Well, no, that's extremely relevant. How is that debt settled? I'm quite certain they don't send over a truck full of cash. If it's just a matter of Bank A telling Bank B to adjust their books and Bank B taking their word for it, then Bank A isn't losing anything. They just created that money out of thin air.

PeterisP 13y ago
Let's suppose I tell you to pay the bartender for a beer and that I'll settle it with you afterwards; and you're taking my word for it - am I not still "losing" the beer money? Have I created the beer money out of thin air? Is there any difference if I later settle this by giving you cash, write a check, pay with paypal or give you a gold piece? The debt is real, if I gave a binding certificate "I'll owe $100 to you" then I just lost $100. Bank A isn't simply "telling Bank B to adjust their books", Bank A is telling "please adjust your books to give $X to Y, and for that I'll pay you that amount via method Z", where Z typically is either a clearing house (someone who aggregates the payments and settles the net differences of all the bazillion payments) or a mutual correspondent account. Until they settle, they have a valid, legally binding debt to Bank B. Trucks full of cash may be involved in settlement, but usually are not since they are very inconvenient and expensive - but if Bank A holds their reserves at a central bank and thus has the right to request it to ship 123 truckloads of cash; then it may transfer part of these reserves to Bank B, so that Bank B will get one of them and Bank A will only be able to request 122 truckloads of cash. Of course, the truckloads of cash are used only as much as needed (say, to fill up ATM's) - but they are real, you can close up your bank, settle all debts, and take all remaining assets out in cash.
- deleted 13y ago
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by maratd 13y ago

PeterisP 13y ago

Let's suppose I tell you to pay the bartender for a beer and that I'll settle it with you afterwards; and you're taking my word for it - am I not still "losing" the beer money? Have I created the beer money out of thin air? Is there any difference if I later settle this by giving you cash, write a check, pay with paypal or give you a gold piece? The debt is real, if I gave a binding certificate "I'll owe $100 to you" then I just lost $100. Bank A isn't simply "telling Bank B to adjust their books", Bank A is telling "please adjust your books to give $X to Y, and for that I'll pay you that amount via method Z", where Z typically is either a clearing house (someone who aggregates the payments and settles the net differences of all the bazillion payments) or a mutual correspondent account. Until they settle, they have a valid, legally binding debt to Bank B. Trucks full of cash may be involved in settlement, but usually are not since they are very inconvenient and expensive - but if Bank A holds their reserves at a central bank and thus has the right to request it to ship 123 truckloads of cash; then it may transfer part of these reserves to Bank B, so that Bank B will get one of them and Bank A will only be able to request 122 truckloads of cash. Of course, the truckloads of cash are used only as much as needed (say, to fill up ATM's) - but they are real, you can close up your bank, settle all debts, and take all remaining assets out in cash.

deleted 13y ago
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