Re:Bank of Canada increases overnight rate target to 1 per cent
by umanwizard on Wednesday September 06, 2017 @01:22PM
(#15185407)
I'm not an economist or finance expert so take the following with a grain of salt, but this is how I understand it...
When you talk about "money being electronic" you're basically talking about bonds. When people (or companies, foreign governments, etc.) want to hold large quantities of USD they don't really hold USD, they hold short-term US government bonds.
The only truly "real USD" is physical cash, or an account balance at the Federal Reserve (which is available only to banks).
So people don't own bonds just because of the coupon, it's also really the only convenient way to own (something mostly equivalent to) currency -- other than keeping it in a private bank, which is much more likely to fail than the government.
When you talk about "money being electronic" you're basically talking about bonds. When people (or companies, foreign governments, etc.) want to hold large quantities of USD they don't really hold USD, they hold short-term US government bonds.
The only truly "real USD" is physical cash, or an account balance at the Federal Reserve (which is available only to banks).
So people don't own bonds just because of the coupon, it's also really the only convenient way to own (something mostly equivalent to) currency -- other than keeping it in a private bank, which is much more likely to fail than the government.