Maybe this is a dumb question, but how is the "single large rebalancing transfer" accomplished? I don't know of any machine where dollars go in one side, are destroyed, and euros are created on the other side.
My assumption was that it usually comes down to finding someone else with money in both currencies (i.e. a large bank or government) and exchanging one for the other. Of course that's unsatisfying: it's not just turtles all the way down.
Ultimately if I'm running out of, say, USD, and have a lot of CAD, I have to to buy a bunch of something for CAD and sell it in USD. If you wanted a "zero banking" currency transaction I guess the way to do it is to park on the Canadian side of the border, buy imports to the US, walk across to the US, and sell them.
Or maybe there's a magic money shredding / printing machine that I didn't know about. I guess an international treaty could actually authorize such a thing.
> I don't know of any machine where dollars go in one side, are destroyed, and euros are created on the other side.
The Treasury is the machine you're looking for. And the wire transfer, SWIFT, usually, is the tool of choice. In a sense, yes dollars are "destroyed" in that they leave that monetary system. Banks like BoA hold a few kind of ledgers with the country's central bank one which gets discounted during the outflow.
So euros are then credited to whatever institution you transferred it to. That country just became that much richer.
This is why places like HSBC, CITI have free transfers for intra-bank but you still pay $15 for the same via wire transfer? Why would you ever want to do that? beats me, but the point is you can and it has a very real affect on the system other than some internal database going +/-.
But in the end, it's the country's central bank credit/debiting any institution and then just... printing? when it wants? but other countries... m1... foreign debt.
> The Treasury is the machine you're looking for... In a sense, yes dollars are "destroyed" in that they leave that monetary system.
So are you saying there's an procedure where the US treasury takes USD out of circulation, and the ECB introduces the equivalent in Euro, according to some official exchange rate? How do they set the exchange rate?
You'll need to provide more constructive feedback. Or are you suggesting that it's not "destroyed" and that the origin country can freely transfer money without discounting its books?
There are so many problems with your explanation it's hard to know where to start. Just ask ChatGPT to explain it and go back and forth until it's clear.
Really, it's bad form to comment on something technical where you are just miles out of your depth.
Yes, at some point you have to load a plane with cash. The point is that each of the turtles can consolidate smaller payments to both minimize transfer fees and cancel out money flows running in opposite directions.
Yes, it's just the banks. They have both. It's really not rocket science.
It should be satisfying in the following sense - the financial system is nowhere near as complicated as it seems. There is no magic. If you find yourself feeling like there is some magic somewhere, just ask another question because there is likely just a word or a layer of indirection that is making something quite simple seem mysterious.
Well, at your suggestion I did ask ChatGPT, and it pointed to one sort of magic trick: currency swaps between central banks. That is (kind of) a machine where one type of money goes in one side and the other type comes out the other. There's even a cool tracker [1].
But yeah, it's mostly just market forces that keep things stabilized, it seems.
Even central bank swaps aren't magical. The ECB for example has an account for the US Fed, the same way they have an account for HSBC or whatever. The ECB can credit the account for the US Fed, the same way it can for anyone else.
The main trick that folks get hung up on (and, you might be too) is that most "money" is just an IOU from a bank. We've just created a sophisticated way to trade the IOUs and call it "money".
This is pretty much what I was asserting in my original post, my question was if there was some additional mechanism beyond simple market forces.
It's not inconceivable (nor magical in any way) to imagine treaties that would allow an actual conversion from one currency to another, where USD go in one side and Euro come out the other. Situations like this have existed in the past: currencies have been converted when, for example, the former currencies in the Eurozone were converted to Euros.
No such situations exist right now: entities just hold multiple currencies and exchange them for you.
It's simpler than you are imagining. In practice, anyone can make USD go in one side and EUR come out the other. It's just the notion that something is "destroyed" which is wrong. If I owe you x USD, you can call me and we can agree I now owe you y EUR. If my name is "JP Morgan Chase Bank", it's really easy. And, the "m1 money supply" just changed. But, m1 is kind of nonsense because... it includes checking account deposits which are just IOUs from banks. So, no one just got richer (the bank still owes you money) and nothing is really going on.
Your mental model is falling down around the definition of "currency", "money" etc. It isn't what you imagine it is. We just have a system for trading bank receivables and call it "money".
My assumption was that it usually comes down to finding someone else with money in both currencies (i.e. a large bank or government) and exchanging one for the other. Of course that's unsatisfying: it's not just turtles all the way down.
Ultimately if I'm running out of, say, USD, and have a lot of CAD, I have to to buy a bunch of something for CAD and sell it in USD. If you wanted a "zero banking" currency transaction I guess the way to do it is to park on the Canadian side of the border, buy imports to the US, walk across to the US, and sell them.
Or maybe there's a magic money shredding / printing machine that I didn't know about. I guess an international treaty could actually authorize such a thing.