if Japan is importing many goods and services,
they need to pay them in USD
Most of the money is created by commercial banks
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-...
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.
Why does Japan need to pay them in USD?Because, as ArtTimeInvestor wrote,
> but the US still seems on top of its game.
Whatever the US sells, whether it be purely business/technology or even commingled with military resources, a lot of people in the world are interested in buying it.
The value of a currency is how much people are willing to pay to have the other currency. For example, if Japan is importing many goods and services, they need to pay them in USD and so they have to buy USD on the market.
> Both, Japan and the US are increasing their monetary base by what, 10% per year?
The monetary base is not strictly connected to the money in the economy. Most of the money is created by commercial banks when they hand out loans. So the entire money in the economy can shrink (people paying back more loans than they), while at the same time the central bank increases currency.
For reference: https://www.bundesbank.de/resource/blob/654284/df66c4444d065...
https://www.bis.org/review/r180118c.pdf