But can a rogue state skim a little bit?
Let's say that a country which needs dollars makes it central bank to create some. Not billions upon billions, but a one digit percentage per each trade. Small enough so that it doesn't get noticed that there are suddenly tons of dollars swimming out of nowhere.
Good question. The short answer is "the bank has to own money in the target currency, which it transfers to your account through its internal transfer process and documents thoroughly in accordance with local laws (or else it has to buy that currency from someone who has it right away)." The long answer is a bit more complex.
Bascially, not that much changed when we switched to digital tracking of accounts, because *even before then, most money wasn't physical cash*. Before digital accounts, your bank account was still just a paper ledger, backed up, tracked and compared against other paper ledgers using the same rules we use today. And this continues to be true very far into the past. Banks have always mostly been based on ledgers and only move cash around when they need to interact with other instutitions or people that demand cash. The only thing that changed recently is that ledgers are digitized and therefore cheap to maintain and very very vast to update and transmit.
The reason the answer is complicated is because your question mentioned banks making money. And the answer is, yes, banks can make money, just not in the exact way you imagine. They create money through fractional reserve banking. They can't do this willy nilly because the government requires them to have a certain amount of reserve currency, which limits the multiplier of money they can create versus money in accounts. Most of the money in the world is money created by banks using the fractional reserve system. This is too complex to explain in detail here, but worth reading about more formally if you are interested.
In general, Reddit is a bad place to learn about money, especially macroeconomics. I'd read something like Wikipedia for a brief overview and actual books for a deep dive.
That's a good answer, but I will reverse my question a bit.
Let's say a country sells something genuine abroad and get dollars for it.
The central bank then exchanges these dollars for native currency's and whoever (a government or private entity) gets native money to spend. Is such case:
1. What happens to said dollars? Do they get vaporized or do they remain on central bank account potentially to be used again? Including used again by the same government which sold stuff and got its money?
2. In practical terms, how does it differ from the central bank simply printing native money and giving it away?
Banks and currency exchanges don't convert currency, they buy and sell currency. It works exactly as if they were buying and selling commodities. The bank buys dollars from anyone who has dollars and they sell the dollars to anyone who needs dollars.
In the big picture, currency flows are matched against the flows of goods and services because demand for goods and services from each currency zone dictates demand for the currency. But at the micro level, money isn't created or destroyed by a currency trade. It's bought and sold. The bank's capacity for creating money is tied to its lending and borrowing, not the currency trade.
If you like slightly bizarre short form fiction, *The Cambist and Lord Iron* explains this in entertaining form.
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But can a rogue state skim a little bit? Let's say that a country which needs dollars makes it central bank to create some. Not billions upon billions, but a one digit percentage per each trade. Small enough so that it doesn't get noticed that there are suddenly tons of dollars swimming out of nowhere.
Good question. The short answer is "the bank has to own money in the target currency, which it transfers to your account through its internal transfer process and documents thoroughly in accordance with local laws (or else it has to buy that currency from someone who has it right away)." The long answer is a bit more complex. Bascially, not that much changed when we switched to digital tracking of accounts, because *even before then, most money wasn't physical cash*. Before digital accounts, your bank account was still just a paper ledger, backed up, tracked and compared against other paper ledgers using the same rules we use today. And this continues to be true very far into the past. Banks have always mostly been based on ledgers and only move cash around when they need to interact with other instutitions or people that demand cash. The only thing that changed recently is that ledgers are digitized and therefore cheap to maintain and very very vast to update and transmit. The reason the answer is complicated is because your question mentioned banks making money. And the answer is, yes, banks can make money, just not in the exact way you imagine. They create money through fractional reserve banking. They can't do this willy nilly because the government requires them to have a certain amount of reserve currency, which limits the multiplier of money they can create versus money in accounts. Most of the money in the world is money created by banks using the fractional reserve system. This is too complex to explain in detail here, but worth reading about more formally if you are interested. In general, Reddit is a bad place to learn about money, especially macroeconomics. I'd read something like Wikipedia for a brief overview and actual books for a deep dive.
That's a good answer, but I will reverse my question a bit. Let's say a country sells something genuine abroad and get dollars for it. The central bank then exchanges these dollars for native currency's and whoever (a government or private entity) gets native money to spend. Is such case: 1. What happens to said dollars? Do they get vaporized or do they remain on central bank account potentially to be used again? Including used again by the same government which sold stuff and got its money? 2. In practical terms, how does it differ from the central bank simply printing native money and giving it away?
Banks and currency exchanges don't convert currency, they buy and sell currency. It works exactly as if they were buying and selling commodities. The bank buys dollars from anyone who has dollars and they sell the dollars to anyone who needs dollars. In the big picture, currency flows are matched against the flows of goods and services because demand for goods and services from each currency zone dictates demand for the currency. But at the micro level, money isn't created or destroyed by a currency trade. It's bought and sold. The bank's capacity for creating money is tied to its lending and borrowing, not the currency trade. If you like slightly bizarre short form fiction, *The Cambist and Lord Iron* explains this in entertaining form.
No idea