Re:A quick breakdown of what SWIFT is and why it matters
by lokar on Friday February 25, 2022 @02:42PM
(#30471397)
Exactly, they don't give you dollars, they give you a dollar denominated liability.
Re:A quick breakdown of what SWIFT is and why it matters
by MatteoFrigo on Friday February 25, 2022 @02:56PM
(#30471608)
Just to make sure we are speaking the same language: If I have $1 in a checking account in a US bank, do I have one dollar, or do I have a dollar-denominated asset of $1 face value, backed by a dollar-denominated liability of the bank?
Re:A quick breakdown of what SWIFT is and why it matters
by ajross on Friday February 25, 2022 @03:02PM
(#30471682)
Reserve requirements at US banks are regulated by the US government as one of many mechanisms used to control the money supply. So... yes, sure. It's complicated, but a dollar at a US bank is a "dollar", because that's what "dollar" means.
The contention upthread was that foreign banks could do the same thing to print dollars. And, again, it's complicated. They sorta can, but only in the sense of placing a gargantuan short bet on the dollar. (A ton of short selling on a small security can push the price down for the same reason). So no one does that, because no bank wants to play that kind of game (or is allowed: all those large foreign banks are themselves regulated by their own national regimes).
Re:A quick breakdown of what SWIFT is and why it matters
by count on Friday February 25, 2022 @06:17PM
(#30473547)
Oh oh, next do the Depository Trust Company and how people don't actually own their stock shares of most public stocks either :)
Re:A quick breakdown of what SWIFT is and why it matters
by lokar on Saturday February 26, 2022 @01:29AM
(#30475603)
If you walk into a US bank and deposit $1 cash, they now owe you $1. To what extent they must have ready cash, fed deposits, liquid assets, illiquid assets, etc to back that debt is the subject of bank regulation
This is true, but it's actually sort of a specious point. What a eurodollar deposit "really" is, is just a short contract. Your European bank takes your exchange and promises to give you back dollars when you ask for them. That they may not have them right now is just a technical detail. But the value of the dollar is still set by what the market is willing to pay for it. The bank going "short USD" is a risk it takes, not an inflationary pressure per se.
So... sure. Foreign banks can create dollars just like brokerages can "create stock shares"[1]. Except, they really can't. They're just playing accounting tricks.
[1] Or, more relevantly perhaps, how one crypto exchange can create wrapped tokens representing foreign coins. This capability was part of the exploit chain that led to the DeFi hack last month.