• masaccio commented on the blog post Unlearning and Relearning

    2013-01-20 11:35:07View | Delete

    I think you are right. Wray explains that money is a form of debt, and so are treasuries. The difference is that the latter pay interest, and money doesn’t. So, say a Chinese firm sells a load of tools to Walmart. Walmart pays in dollars. The Chinese firm can’t use dollars so it exchanges them for Renminbi with its Chinese Bank. That bank sells the dollars to the Chinese Central Bank. The Central Bank wants to build up a reserve of US dollars to finance the trade surplus, but it wants interest. So, it exchanges its dollars for Treasuries.

    As Tarheeldem points out, none of these transactions involves paper. They are all entries on the books of the banks. Savers are in the same place. We don’t want just to hold money we don’t need immediately. We want a return. If our primary goal is safety and access to our funds, we convert our bank deposits to Treasuries, all with just a few keystrokes, no paper involved.