How do central banks clear things with each other?
Say "Bank of USA" emits physical and electronic dollars, then those dollars flow to Japan for some goods. Can the central bank look at every way those dollars went to Japan (some small part in physical way, much bigger part by moving through multiple clearing houses).
How does the central bank then trust the other central bank? "We received 1 billion in paper dollars and 100 billion in electronic transactions".
Also, how can "Bank A" from say Germany, trust "Bank B" from say some less reputable country that those underlying "electronic" dollars even exist?
The settlement company supposedly checks this somehow, but how?
If "Bank B" moves 100 million to "Bank A", then were is that 100 million in a physical way, if all of that is just electronic money created via lending.
How can you know that the "Bank B" didnt just print 200M and use it to pay for something in Bank A.
Among the same country, there is some central institution that looks on that (e.g. all banks in EU are audited by EU). But what about cross border transactions. How can you know that those 100M dollars paid to you are actual 100M dollars and not just some fake line?
Does your bank have "anything" apart from a line in a database that said that you received 100M from the other bank? And also what is the incentive for the other bank to not "create" a bit money "on the side" to import stuff to your country.
Every time I try to search about any clearing houses I just land up on the "Clearstream scandal" wikipedia page. Same for the recent "naked short" theory, where you basically land on the articles about DTCC, but without any information "how the sausage is made".
Say "Bank of USA" emits physical and electronic dollars, then those dollars flow to Japan for some goods. Can the central bank look at every way those dollars went to Japan (some small part in physical way, much bigger part by moving through multiple clearing houses).
How does the central bank then trust the other central bank? "We received 1 billion in paper dollars and 100 billion in electronic transactions".
Also, how can "Bank A" from say Germany, trust "Bank B" from say some less reputable country that those underlying "electronic" dollars even exist? The settlement company supposedly checks this somehow, but how?
If "Bank B" moves 100 million to "Bank A", then were is that 100 million in a physical way, if all of that is just electronic money created via lending.
How can you know that the "Bank B" didnt just print 200M and use it to pay for something in Bank A. Among the same country, there is some central institution that looks on that (e.g. all banks in EU are audited by EU). But what about cross border transactions. How can you know that those 100M dollars paid to you are actual 100M dollars and not just some fake line? Does your bank have "anything" apart from a line in a database that said that you received 100M from the other bank? And also what is the incentive for the other bank to not "create" a bit money "on the side" to import stuff to your country.
Every time I try to search about any clearing houses I just land up on the "Clearstream scandal" wikipedia page. Same for the recent "naked short" theory, where you basically land on the articles about DTCC, but without any information "how the sausage is made".