(The question is not entirely ERE related, but better understanding of currencies does increase one's resiliency, so...)
I've been wondering how does the global banking system handle fiat currencies. Let's take US dollar for example. Since most of US dollars are virtual (bits on hard drives), what stops a rogue bank in poorly regulated country from claiming that they now have billions of dollars (and say quickly exchanging those dollars for something real)? Are poorly regulated countries just not allowed in the USD transfer system? Does that mean that people and companies in those countries cannot send and receive money in USD?
Fiat currencies and global banking
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Re: Fiat currencies and global banking
Banks have accounts, which include a line of credit draw on, in each other's banks and use that to settle transactions between each other. Internationally, this is handled by major banks. A smaller bank will have one of those majors handle their international settlements. In short, banks move money around between themselves as well.
A rogue bank would see its check/transaction bounce much like if you were to write a personal check for a zillion dollars and someone else tried to cash it in on your account.
https://www.investopedia.com/terms/e/eurodollar.asp (note that "euro" here refers to any country outside the US, not just Europe)
https://www.investopedia.com/terms/i/in ... market.asp
A rogue bank would see its check/transaction bounce much like if you were to write a personal check for a zillion dollars and someone else tried to cash it in on your account.
https://www.investopedia.com/terms/e/eurodollar.asp (note that "euro" here refers to any country outside the US, not just Europe)
https://www.investopedia.com/terms/i/in ... market.asp
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Re: Fiat currencies and global banking
https://en.wikipedia.org/wiki/Bangladesh_Bank_robbery is somewhat like what I think you are describing. There is a lot of coverage on the details including podcasts.
Re: Fiat currencies and global banking
Ok thanks, I think that explains it. Looks like the risk is limited to the major banks only, which are probably too big and too regulated for it to ever be a concern. That's probably also how the sanctions can just "forbid Russia from trading in USD", which was another things that puzzled me (although that seems leaky, as they can do the usual avoidance stuff such as registering shell companies in neutral countries and having those companies receive payments in USD).jacob wrote: ↑Mon May 08, 2023 8:53 amBanks have accounts, which include a line of credit draw on, in each other's banks and use that to settle transactions between each other. Internationally, this is handled by major banks. A smaller bank will have one of those majors handle their international settlements. In short, banks move money around between themselves as well.
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Re: Fiat currencies and global banking
Yeah, someone else has to recognize all the currency you claim to have. You have to have a counterparty.
You could try counterfeiting a physical currency and getting others to accept it, and over history some governments have attempted just that. But then that's why banknotes have serial numbers.
You could try counterfeiting a physical currency and getting others to accept it, and over history some governments have attempted just that. But then that's why banknotes have serial numbers.
Re: Fiat currencies and global banking
The book Cloudmoney provides an accessible introduction to how cash works in the international banking system:
https://www.amazon.com/Cloudmoney-Cash- ... 006293631X
I think I picked up the recommendation here. Given topic, it's a relatively easy read.
https://www.amazon.com/Cloudmoney-Cash- ... 006293631X
I think I picked up the recommendation here. Given topic, it's a relatively easy read.
Re: Fiat currencies and global banking
Thanks, I'll check it out.Scott 2 wrote: ↑Mon May 08, 2023 1:39 pmThe book Cloudmoney provides an accessible introduction to how cash works in the international banking system:
https://www.amazon.com/Cloudmoney-Cash- ... 006293631X
I think I picked up the recommendation here. Given topic, it's a relatively easy read.