Pksimon2007
Member
- May 2, 2015
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They create settlement funds or, as they are called some places, reserves.
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They create settlement funds or, as they are called some places, reserves.
They create settlement funds or, as they are called some places, reserves.
Home started by Paul Glover
explains how anyone can organize and issue their own currency legally
Paul Glover social entrepreneur
They create settlement funds or, as they are called some places, reserves.
Home started by Paul Glover
explains how anyone can organize and issue their own currency legally
Paul Glover social entrepreneur
- Why would somebody who claims to be a constitutionalist ignore Article 1 Section 8?
Let's forget about how banks create money right now, and look at how banks process money, because that process contains the tools needed to change a congressional appropriation into money.
If two banks want to accept checks drawn on deposit accounts of the other bank, they have to settle. The most primitive way to settle would be to send a courier between banks with cash every time one bank accepted the deposit of a check written on the other bank. This is called gross settlement - each transaction is settled individually.
The next step in efficiency is to net. They can wait to the end of the day, and settle the net amount of transactions with each other in one payment. That end of day payment would be far less than the sum of the payments for each individual transactions, so it requires the banks to handle and exchange far less cash than with gross settlement.
The second step in efficiency is to have each bank set up a deposit account at the other bank. When they net, rather than sending a courier with cash to settle, the deficit bank can simply credit the deposit account of the surplus bank. This requires no cash at all.
If we were to add many more banks to our universe of net settlements with deposits, every bank would have to have an account with every other bank. In order to make it more efficient, we can set up one central bank that only does business with banks, for the purposes of settlement. Every bank then needs only one account with the central bank, rather than with every other bank.
Since the central bank doesn't do business with anyone but banks, the types of deposits that banks maintain with the central bank don't even need to be the same kind of money as the deposits banks hold for their customers.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds, we are essentially using a different "currency" in our central banking operation than we are at the retail bank level.
In fact, since we are now netting transactions through a clearinghouse, the net of all transactions should always equal zero, so it is DESIRABLE to pass a law saying that banks cannot withdraw their balances from these settlement fund accounts at the central bank. To do so would create an imbalance in our settlement scorekeeping system.
Let;s call these settlement deposit accounts at the central bank "reserve accounts", and call the settlement funds which we swap back and forth between banks "reserves". We're going to call them that because there is no name we could give to them which would confuse people more.
So now we have twp systems: a retail banking system which is handling deposits which allow depositors to settle their accounts.
We also have a central banking system which is handling reserves, which allows banks to settle their interbank accounts.
The systems do the same thing, and are somewhat mirror images of each other.
We now have the tools we need to show how money is created by government.
Let's forget about how banks create money right now, and look at how banks process money, because that process contains the tools needed to change a congressional appropriation into money.
If two banks want to accept checks drawn on deposit accounts of the other bank, they have to settle. The most primitive way to settle would be to send a courier between banks with cash every time one bank accepted the deposit of a check written on the other bank. This is called gross settlement - each transaction is settled individually.
The next step in efficiency is to net. They can wait to the end of the day, and settle the net amount of transactions with each other in one payment. That end of day payment would be far less than the sum of the payments for each individual transactions, so it requires the banks to handle and exchange far less cash than with gross settlement.
The second step in efficiency is to have each bank set up a deposit account at the other bank. When they net, rather than sending a courier with cash to settle, the deficit bank can simply credit the deposit account of the surplus bank. This requires no cash at all.
If we were to add many more banks to our universe of net settlements with deposits, every bank would have to have an account with every other bank. In order to make it more efficient, we can set up one central bank that only does business with banks, for the purposes of settlement. Every bank then needs only one account with the central bank, rather than with every other bank.
Since the central bank doesn't do business with anyone but banks, the types of deposits that banks maintain with the central bank don't even need to be the same kind of money as the deposits banks hold for their customers.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds, we are essentially using a different "currency" in our central banking operation than we are at the retail bank level.
In fact, since we are now netting transactions through a clearinghouse, the net of all transactions should always equal zero, so it is DESIRABLE to pass a law saying that banks cannot withdraw their balances from these settlement fund accounts at the central bank. To do so would create an imbalance in our settlement scorekeeping system.
Let;s call these settlement deposit accounts at the central bank "reserve accounts", and call the settlement funds which we swap back and forth between banks "reserves". We're going to call them that because there is no name we could give to them which would confuse people more.
So now we have twp systems: a retail banking system which is handling deposits which allow depositors to settle their accounts.
We also have a central banking system which is handling reserves, which allows banks to settle their interbank accounts.
The systems do the same thing, and are somewhat mirror images of each other.
We now have the tools we need to show how money is created by government.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds,
Except when banks take deposits or clear checks.
Let's forget about how banks create money right now, and look at how banks process money, because that process contains the tools needed to change a congressional appropriation into money.
If two banks want to accept checks drawn on deposit accounts of the other bank, they have to settle. The most primitive way to settle would be to send a courier between banks with cash every time one bank accepted the deposit of a check written on the other bank. This is called gross settlement - each transaction is settled individually.
The next step in efficiency is to net. They can wait to the end of the day, and settle the net amount of transactions with each other in one payment. That end of day payment would be far less than the sum of the payments for each individual transactions, so it requires the banks to handle and exchange far less cash than with gross settlement.
The second step in efficiency is to have each bank set up a deposit account at the other bank. When they net, rather than sending a courier with cash to settle, the deficit bank can simply credit the deposit account of the surplus bank. This requires no cash at all.
If we were to add many more banks to our universe of net settlements with deposits, every bank would have to have an account with every other bank. In order to make it more efficient, we can set up one central bank that only does business with banks, for the purposes of settlement. Every bank then needs only one account with the central bank, rather than with every other bank.
Since the central bank doesn't do business with anyone but banks, the types of deposits that banks maintain with the central bank don't even need to be the same kind of money as the deposits banks hold for their customers.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds, we are essentially using a different "currency" in our central banking operation than we are at the retail bank level.
In fact, since we are now netting transactions through a clearinghouse, the net of all transactions should always equal zero, so it is DESIRABLE to pass a law saying that banks cannot withdraw their balances from these settlement fund accounts at the central bank. To do so would create an imbalance in our settlement scorekeeping system.
Let;s call these settlement deposit accounts at the central bank "reserve accounts", and call the settlement funds which we swap back and forth between banks "reserves". We're going to call them that because there is no name we could give to them which would confuse people more.
So now we have twp systems: a retail banking system which is handling deposits which allow depositors to settle their accounts.
We also have a central banking system which is handling reserves, which allows banks to settle their interbank accounts.
The systems do the same thing, and are somewhat mirror images of each other.
We now have the tools we need to show how money is created by government.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds,
Except when banks take deposits or clear checks.
- No. It's explained above.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits.
Let's forget about how banks create money right now, and look at how banks process money, because that process contains the tools needed to change a congressional appropriation into money.
If two banks want to accept checks drawn on deposit accounts of the other bank, they have to settle. The most primitive way to settle would be to send a courier between banks with cash every time one bank accepted the deposit of a check written on the other bank. This is called gross settlement - each transaction is settled individually.
The next step in efficiency is to net. They can wait to the end of the day, and settle the net amount of transactions with each other in one payment. That end of day payment would be far less than the sum of the payments for each individual transactions, so it requires the banks to handle and exchange far less cash than with gross settlement.
The second step in efficiency is to have each bank set up a deposit account at the other bank. When they net, rather than sending a courier with cash to settle, the deficit bank can simply credit the deposit account of the surplus bank. This requires no cash at all.
If we were to add many more banks to our universe of net settlements with deposits, every bank would have to have an account with every other bank. In order to make it more efficient, we can set up one central bank that only does business with banks, for the purposes of settlement. Every bank then needs only one account with the central bank, rather than with every other bank.
Since the central bank doesn't do business with anyone but banks, the types of deposits that banks maintain with the central bank don't even need to be the same kind of money as the deposits banks hold for their customers.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds, we are essentially using a different "currency" in our central banking operation than we are at the retail bank level.
In fact, since we are now netting transactions through a clearinghouse, the net of all transactions should always equal zero, so it is DESIRABLE to pass a law saying that banks cannot withdraw their balances from these settlement fund accounts at the central bank. To do so would create an imbalance in our settlement scorekeeping system.
Let;s call these settlement deposit accounts at the central bank "reserve accounts", and call the settlement funds which we swap back and forth between banks "reserves". We're going to call them that because there is no name we could give to them which would confuse people more.
So now we have twp systems: a retail banking system which is handling deposits which allow depositors to settle their accounts.
We also have a central banking system which is handling reserves, which allows banks to settle their interbank accounts.
The systems do the same thing, and are somewhat mirror images of each other.
We now have the tools we need to show how money is created by government.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds,
Except when banks take deposits or clear checks.
- No. It's explained above.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits.
No. It's explained above.
Yeah, I'm still chuckling.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits
New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?
Let's forget about how banks create money right now, and look at how banks process money, because that process contains the tools needed to change a congressional appropriation into money.
If two banks want to accept checks drawn on deposit accounts of the other bank, they have to settle. The most primitive way to settle would be to send a courier between banks with cash every time one bank accepted the deposit of a check written on the other bank. This is called gross settlement - each transaction is settled individually.
The next step in efficiency is to net. They can wait to the end of the day, and settle the net amount of transactions with each other in one payment. That end of day payment would be far less than the sum of the payments for each individual transactions, so it requires the banks to handle and exchange far less cash than with gross settlement.
The second step in efficiency is to have each bank set up a deposit account at the other bank. When they net, rather than sending a courier with cash to settle, the deficit bank can simply credit the deposit account of the surplus bank. This requires no cash at all.
If we were to add many more banks to our universe of net settlements with deposits, every bank would have to have an account with every other bank. In order to make it more efficient, we can set up one central bank that only does business with banks, for the purposes of settlement. Every bank then needs only one account with the central bank, rather than with every other bank.
Since the central bank doesn't do business with anyone but banks, the types of deposits that banks maintain with the central bank don't even need to be the same kind of money as the deposits banks hold for their customers.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds, we are essentially using a different "currency" in our central banking operation than we are at the retail bank level.
In fact, since we are now netting transactions through a clearinghouse, the net of all transactions should always equal zero, so it is DESIRABLE to pass a law saying that banks cannot withdraw their balances from these settlement fund accounts at the central bank. To do so would create an imbalance in our settlement scorekeeping system.
Let;s call these settlement deposit accounts at the central bank "reserve accounts", and call the settlement funds which we swap back and forth between banks "reserves". We're going to call them that because there is no name we could give to them which would confuse people more.
So now we have twp systems: a retail banking system which is handling deposits which allow depositors to settle their accounts.
We also have a central banking system which is handling reserves, which allows banks to settle their interbank accounts.
The systems do the same thing, and are somewhat mirror images of each other.
We now have the tools we need to show how money is created by government.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds,
Except when banks take deposits or clear checks.
- No. It's explained above.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits.
No. It's explained above.
Yeah, I'm still chuckling.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits
New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?
Let's forget about how banks create money right now, and look at how banks process money, because that process contains the tools needed to change a congressional appropriation into money.
If two banks want to accept checks drawn on deposit accounts of the other bank, they have to settle. The most primitive way to settle would be to send a courier between banks with cash every time one bank accepted the deposit of a check written on the other bank. This is called gross settlement - each transaction is settled individually.
The next step in efficiency is to net. They can wait to the end of the day, and settle the net amount of transactions with each other in one payment. That end of day payment would be far less than the sum of the payments for each individual transactions, so it requires the banks to handle and exchange far less cash than with gross settlement.
The second step in efficiency is to have each bank set up a deposit account at the other bank. When they net, rather than sending a courier with cash to settle, the deficit bank can simply credit the deposit account of the surplus bank. This requires no cash at all.
If we were to add many more banks to our universe of net settlements with deposits, every bank would have to have an account with every other bank. In order to make it more efficient, we can set up one central bank that only does business with banks, for the purposes of settlement. Every bank then needs only one account with the central bank, rather than with every other bank.
Since the central bank doesn't do business with anyone but banks, the types of deposits that banks maintain with the central bank don't even need to be the same kind of money as the deposits banks hold for their customers.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds, we are essentially using a different "currency" in our central banking operation than we are at the retail bank level.
In fact, since we are now netting transactions through a clearinghouse, the net of all transactions should always equal zero, so it is DESIRABLE to pass a law saying that banks cannot withdraw their balances from these settlement fund accounts at the central bank. To do so would create an imbalance in our settlement scorekeeping system.
Let;s call these settlement deposit accounts at the central bank "reserve accounts", and call the settlement funds which we swap back and forth between banks "reserves". We're going to call them that because there is no name we could give to them which would confuse people more.
So now we have twp systems: a retail banking system which is handling deposits which allow depositors to settle their accounts.
We also have a central banking system which is handling reserves, which allows banks to settle their interbank accounts.
The systems do the same thing, and are somewhat mirror images of each other.
We now have the tools we need to show how money is created by government.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds,
Except when banks take deposits or clear checks.
- No. It's explained above.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits.
No. It's explained above.
Yeah, I'm still chuckling.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits
New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?
I like to think the reserves are transported there by porcine aviation or unicorns, but you and I know that a member of the Federal Reserve System must meet minimum capital requirements when it is chartered and only Fed deposits and vault cash count. Therefore the deposits at the Fed must precede accepting any deposits.
Let's forget about how banks create money right now, and look at how banks process money, because that process contains the tools needed to change a congressional appropriation into money.
If two banks want to accept checks drawn on deposit accounts of the other bank, they have to settle. The most primitive way to settle would be to send a courier between banks with cash every time one bank accepted the deposit of a check written on the other bank. This is called gross settlement - each transaction is settled individually.
The next step in efficiency is to net. They can wait to the end of the day, and settle the net amount of transactions with each other in one payment. That end of day payment would be far less than the sum of the payments for each individual transactions, so it requires the banks to handle and exchange far less cash than with gross settlement.
The second step in efficiency is to have each bank set up a deposit account at the other bank. When they net, rather than sending a courier with cash to settle, the deficit bank can simply credit the deposit account of the surplus bank. This requires no cash at all.
If we were to add many more banks to our universe of net settlements with deposits, every bank would have to have an account with every other bank. In order to make it more efficient, we can set up one central bank that only does business with banks, for the purposes of settlement. Every bank then needs only one account with the central bank, rather than with every other bank.
Since the central bank doesn't do business with anyone but banks, the types of deposits that banks maintain with the central bank don't even need to be the same kind of money as the deposits banks hold for their customers.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds, we are essentially using a different "currency" in our central banking operation than we are at the retail bank level.
In fact, since we are now netting transactions through a clearinghouse, the net of all transactions should always equal zero, so it is DESIRABLE to pass a law saying that banks cannot withdraw their balances from these settlement fund accounts at the central bank. To do so would create an imbalance in our settlement scorekeeping system.
Let;s call these settlement deposit accounts at the central bank "reserve accounts", and call the settlement funds which we swap back and forth between banks "reserves". We're going to call them that because there is no name we could give to them which would confuse people more.
So now we have twp systems: a retail banking system which is handling deposits which allow depositors to settle their accounts.
We also have a central banking system which is handling reserves, which allows banks to settle their interbank accounts.
The systems do the same thing, and are somewhat mirror images of each other.
We now have the tools we need to show how money is created by government.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds,
Except when banks take deposits or clear checks.
- No. It's explained above.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits.
No. It's explained above.
Yeah, I'm still chuckling.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits
New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?
- How did they get $10 million in deposits?
- They have no reserve requirement at $10 million. They are in the zero tranche.
But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.
I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.
So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.
Let's forget about how banks create money right now, and look at how banks process money, because that process contains the tools needed to change a congressional appropriation into money.
If two banks want to accept checks drawn on deposit accounts of the other bank, they have to settle. The most primitive way to settle would be to send a courier between banks with cash every time one bank accepted the deposit of a check written on the other bank. This is called gross settlement - each transaction is settled individually.
The next step in efficiency is to net. They can wait to the end of the day, and settle the net amount of transactions with each other in one payment. That end of day payment would be far less than the sum of the payments for each individual transactions, so it requires the banks to handle and exchange far less cash than with gross settlement.
The second step in efficiency is to have each bank set up a deposit account at the other bank. When they net, rather than sending a courier with cash to settle, the deficit bank can simply credit the deposit account of the surplus bank. This requires no cash at all.
If we were to add many more banks to our universe of net settlements with deposits, every bank would have to have an account with every other bank. In order to make it more efficient, we can set up one central bank that only does business with banks, for the purposes of settlement. Every bank then needs only one account with the central bank, rather than with every other bank.
Since the central bank doesn't do business with anyone but banks, the types of deposits that banks maintain with the central bank don't even need to be the same kind of money as the deposits banks hold for their customers.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds, we are essentially using a different "currency" in our central banking operation than we are at the retail bank level.
In fact, since we are now netting transactions through a clearinghouse, the net of all transactions should always equal zero, so it is DESIRABLE to pass a law saying that banks cannot withdraw their balances from these settlement fund accounts at the central bank. To do so would create an imbalance in our settlement scorekeeping system.
Let;s call these settlement deposit accounts at the central bank "reserve accounts", and call the settlement funds which we swap back and forth between banks "reserves". We're going to call them that because there is no name we could give to them which would confuse people more.
So now we have twp systems: a retail banking system which is handling deposits which allow depositors to settle their accounts.
We also have a central banking system which is handling reserves, which allows banks to settle their interbank accounts.
The systems do the same thing, and are somewhat mirror images of each other.
We now have the tools we need to show how money is created by government.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds,
Except when banks take deposits or clear checks.
- No. It's explained above.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits.
No. It's explained above.
Yeah, I'm still chuckling.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits
New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?
- How did they get $10 million in deposits?
- They have no reserve requirement at $10 million. They are in the zero tranche.
But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.
I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.
So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.
How did they get $10 million in deposits?
These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.
They have no reserve requirement at $10 million. They are in the zero tranche.
My mistake, it was $100 million in deposits.
But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.
Receive reserves? What does that mean? Who gives them these reserves?
Let's forget about how banks create money right now, and look at how banks process money, because that process contains the tools needed to change a congressional appropriation into money.
If two banks want to accept checks drawn on deposit accounts of the other bank, they have to settle. The most primitive way to settle would be to send a courier between banks with cash every time one bank accepted the deposit of a check written on the other bank. This is called gross settlement - each transaction is settled individually.
The next step in efficiency is to net. They can wait to the end of the day, and settle the net amount of transactions with each other in one payment. That end of day payment would be far less than the sum of the payments for each individual transactions, so it requires the banks to handle and exchange far less cash than with gross settlement.
The second step in efficiency is to have each bank set up a deposit account at the other bank. When they net, rather than sending a courier with cash to settle, the deficit bank can simply credit the deposit account of the surplus bank. This requires no cash at all.
If we were to add many more banks to our universe of net settlements with deposits, every bank would have to have an account with every other bank. In order to make it more efficient, we can set up one central bank that only does business with banks, for the purposes of settlement. Every bank then needs only one account with the central bank, rather than with every other bank.
Since the central bank doesn't do business with anyone but banks, the types of deposits that banks maintain with the central bank don't even need to be the same kind of money as the deposits banks hold for their customers.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds, we are essentially using a different "currency" in our central banking operation than we are at the retail bank level.
In fact, since we are now netting transactions through a clearinghouse, the net of all transactions should always equal zero, so it is DESIRABLE to pass a law saying that banks cannot withdraw their balances from these settlement fund accounts at the central bank. To do so would create an imbalance in our settlement scorekeeping system.
Let;s call these settlement deposit accounts at the central bank "reserve accounts", and call the settlement funds which we swap back and forth between banks "reserves". We're going to call them that because there is no name we could give to them which would confuse people more.
So now we have twp systems: a retail banking system which is handling deposits which allow depositors to settle their accounts.
We also have a central banking system which is handling reserves, which allows banks to settle their interbank accounts.
The systems do the same thing, and are somewhat mirror images of each other.
We now have the tools we need to show how money is created by government.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds,
Except when banks take deposits or clear checks.
- No. It's explained above.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits.
No. It's explained above.
Yeah, I'm still chuckling.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits
New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?
- How did they get $10 million in deposits?
- They have no reserve requirement at $10 million. They are in the zero tranche.
But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.
I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.
So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.
How did they get $10 million in deposits?
These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.
They have no reserve requirement at $10 million. They are in the zero tranche.
My mistake, it was $100 million in deposits.
But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.
Receive reserves? What does that mean? Who gives them these reserves?
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds,
Except when banks take deposits or clear checks.
- No. It's explained above.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits.
No. It's explained above.
Yeah, I'm still chuckling.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits
New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?
- How did they get $10 million in deposits?
- They have no reserve requirement at $10 million. They are in the zero tranche.
But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.
I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.
So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.
How did they get $10 million in deposits?
These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.
They have no reserve requirement at $10 million. They are in the zero tranche.
My mistake, it was $100 million in deposits.
But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.
Receive reserves? What does that mean? Who gives them these reserves?
- Did you not read the OP?
If you accept a check as a deposit, that becomes a liability for you, the bank.
The bank on which it was drawn has to lose an asset, because they have to honor the check which was drawn on one of their accounts.
The Fed takes reserves out of their reserve account.
The Fed puts them in yours.
That's how the banking system keeps score, to simulate transfers of money between depositors when they write checks to each other.
When the bank accepts the deposit, the Fed gives the bank reserves in the amount of the deposit.
Since the two systems - the deposits at the central bank and the deposits at retail banks - should never have any reason to exchange funds,
Except when banks take deposits or clear checks.
- No. It's explained above.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits.
No. It's explained above.
Yeah, I'm still chuckling.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits
New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?
- How did they get $10 million in deposits?
- They have no reserve requirement at $10 million. They are in the zero tranche.
But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.
I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.
So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.
How did they get $10 million in deposits?
These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.
They have no reserve requirement at $10 million. They are in the zero tranche.
My mistake, it was $100 million in deposits.
But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.
Receive reserves? What does that mean? Who gives them these reserves?
- It doesn't sound like you read my posts.
There's a lot of information there, presented simply.
It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.
If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.
Reserves serve no reserve function.
They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.
They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.
If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.
They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.
They're nothing more than that.
The term reserve is an archaic one, which represented something completely different in commodity money systems.
In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.
- No. It's explained above.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits.
No. It's explained above.
Yeah, I'm still chuckling.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits
New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?
- How did they get $10 million in deposits?
- They have no reserve requirement at $10 million. They are in the zero tranche.
But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.
I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.
So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.
How did they get $10 million in deposits?
These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.
They have no reserve requirement at $10 million. They are in the zero tranche.
My mistake, it was $100 million in deposits.
But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.
Receive reserves? What does that mean? Who gives them these reserves?
- Did you not read the OP?
If you accept a check as a deposit, that becomes a liability for you, the bank.
The bank on which it was drawn has to lose an asset, because they have to honor the check which was drawn on one of their accounts.
The Fed takes reserves out of their reserve account.
The Fed puts them in yours.
That's how the banking system keeps score, to simulate transfers of money between depositors when they write checks to each other.
When the bank accepts the deposit, the Fed gives the bank reserves in the amount of the deposit.
Did you not read the OP?
I did.
The Fed takes reserves out of their reserve account.
That's how it works now. Your idea was that banks would never touch their reserves.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits
Now you're saying my deposits impacted my bank's, and at least one other bank's, reserve balance at the Fed.
- No. It's explained above.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits.
No. It's explained above.
Yeah, I'm still chuckling.
There is no exchange between any bank and the Fed, between bank deposits and central bank deposits
New bank opens with $10 Million in deposits.
How does their reserve balance get to the Fed?
- How did they get $10 million in deposits?
- They have no reserve requirement at $10 million. They are in the zero tranche.
But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.
I also indicated that banks can buy and sell stuff to the Fed, primarily Treasuries.
So in the extremely unlikely event that every deposit on Day 1 was in cash, the bank would buy Treasuries from a dealer and offer to buy reserves from the Fed.
How did they get $10 million in deposits?
These strange interest seeking creatures sometimes just drop them off.
They're called depositors. Sometimes they call them customers.
They have no reserve requirement at $10 million. They are in the zero tranche.
My mistake, it was $100 million in deposits.
But let's assume they had to meet the 10% requirement of the top tranche, and they suddenly received $10M in deposits on opening day.
If $1M of those deposits were checks, they would receive $1M in reserves, which would cover their reserve requirement on $10M in deposits.
Receive reserves? What does that mean? Who gives them these reserves?
- It doesn't sound like you read my posts.
There's a lot of information there, presented simply.
It's not ideogical argument, it's an explanation of what reserves are, what reserves do, and where they come from.
If you have the intuition that they are anything like the common sense definition of reserves would lead you to think, then you're not familiar with the system.
Reserves serve no reserve function.
They are not money that is withheld from deposits, or salted away in case of emergency. They are nothing like that.
They are a completely different sort of electronic currency from anything we use, which only serve the purpose of allowing banks to clear payments with each other.
If you think of those WWII movies where some admiral in Hawaii has lackeys pushing around little wooden ships on a plexiglass-covered map to keep track of where the real ships are, you have a good picture of what reserves are.
They are little wooden money ships which keep track of where the real bank deposits are in the commercial banking system.
They're nothing more than that.
The term reserve is an archaic one, which represented something completely different in commodity money systems.
In many countries, what we call reserves are now called "settlement funds", which is far less confusing. Central bank reserves are not reserves in any sense that a businessperson or accountant would recognize them to be.
They are not money that is withheld from deposits, or salted away in case of emergency.
Back to my $100 million in deposits. The Fed is now holding $10 million.
How is that different than "withheld from deposits, or salted away in case of emergency"?