"...in riskier layers that are build upon this base" --> that build upon / that are built upon
"they could be endorsed by the payee and transferred some other entity," --> transfered *to*
"Payee": ok, here. But:
"The cheques would be returned to the payee’s bank, which would use the information to deduct the amount of the cheque from the payee’s account."
"Payee" means the one being paid.
And same point from there on with "payee."
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So much for volunteering at my night job, now for my hobby:
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IMO, you spent the first half building up the base money theory of money, an example that didn't come into today's essay being Fractional Reserve, before debunking it with money as unit of account and dealing a fait accomplis with the Canadian zero-reserves system. Left me coming and going a bit.
(I just saw this.) I have just flown back home after travelling, caught some kind of virus, and now half of the main floor of my house is being rebuilt. So I have not had any time to see whether I fixed the typos properly or not, never mind read the rest of the comment threads....
For cheques, or any transfer payments, Payer & Payee is usually used. CB debits Payer's Bank reserves (deducts money) and Payee's bank reserves are credited (receives money). Payee's bank then credits Payee's account with the amount of deposit (IOU) bank liability to Payee.
Yes. But it's not this kind of topical issue, it's only typing errors I was talking about in the first half of my comment: he meant payer but repeatedly said "payee."
As to giving you some flack: "CB debits payer's bank reserves."--Well, a central bank can't with a key stroke debit vault cash, which is the bulk of what is meant by "reserves," so this leads to a complicated scenario. But if we write it in reverse such that every bank is credited with the reserves first and only then gets debited, then that will work out just fine.
Maybe we can refine/ complicate issue further. (Thanks to Google):
"....There are three parties involved in the processing of a cheque: the DRAWER, who issues the cheque and holds the bank account; the DRAWEE, which is the financial institution; and the PAYEE, who is the person whose name appears on the cheque and will receive the funds."
I'm from Australia where reserves would be interpreted as
electronic exchange settlement balances for interbank payment transfers. I did not realize US mainly regards reserves as cash on reserve. Does the FED also regard the bank's electronic balances at the FED reserves too?
Settlement balances = "reserves". As I note, I only use reserves because that is what American textbooks use (and its shorter). Technically, would only be reserves in a system where banks have to hold required reserves.
Yes, the balances are not only reserves, but also no one but I realizes that physical cash in cashier drawers, et cetera, "vault cash" also counts toward reserves, so I guess it's the same in Australia and you didn't realize.
So my point was that pre-2008, pre-QE, just because a bank were nicely above its reserve ratio requirement ("ratio of reserves to net transaction deposits"), it doesn't imply it held any reserve balances at all, because five sixths of what we thought were the reserves it was using to transact with were vault cash which also was counting towards the required sum, so some (all?) banks were transacting between themselves without pre-existing reserves.
Also, the other one-sixth, the actual reserve balances, people assume were equally distributed. But as a point of logic, they would all have been sitting in the accounts of the primary dealers in preparation for the next Treasury auction, as "total reserve balances" across all banks is very roughly the sum required for a single Treasury auction of that period (happened four or five days a week).
For reserve balance fans who won't let go, one might point out that Stephanie Kelton says that the act of entering a payment file by the Treasury creates the reserve balance, and then suggest that a payor bank's payment file entry does the same in the payee account, but its either cross-cancelled by the fact that each payor is either also a payee from another bank, in a thousand bank cycle of payments, or it borrows at the market rate a credit back to itself to complete the chain, from a payee, rather than from the C.B., which deletes the credit before it can form.
What is Money
"...in riskier layers that are build upon this base" --> that build upon / that are built upon
"they could be endorsed by the payee and transferred some other entity," --> transfered *to*
"Payee": ok, here. But:
"The cheques would be returned to the payee’s bank, which would use the information to deduct the amount of the cheque from the payee’s account."
"Payee" means the one being paid.
And same point from there on with "payee."
________________
So much for volunteering at my night job, now for my hobby:
________________
IMO, you spent the first half building up the base money theory of money, an example that didn't come into today's essay being Fractional Reserve, before debunking it with money as unit of account and dealing a fait accomplis with the Canadian zero-reserves system. Left me coming and going a bit.
Thanks. I add a "thank you" note to my manuscript...
Ha, ha! It's very funny, but don't leave my name up in bold print like that in relation to typos for more than a week or so!
(I just saw this.) I have just flown back home after travelling, caught some kind of virus, and now half of the main floor of my house is being rebuilt. So I have not had any time to see whether I fixed the typos properly or not, never mind read the rest of the comment threads....
For cheques, or any transfer payments, Payer & Payee is usually used. CB debits Payer's Bank reserves (deducts money) and Payee's bank reserves are credited (receives money). Payee's bank then credits Payee's account with the amount of deposit (IOU) bank liability to Payee.
Yes. But it's not this kind of topical issue, it's only typing errors I was talking about in the first half of my comment: he meant payer but repeatedly said "payee."
As to giving you some flack: "CB debits payer's bank reserves."--Well, a central bank can't with a key stroke debit vault cash, which is the bulk of what is meant by "reserves," so this leads to a complicated scenario. But if we write it in reverse such that every bank is credited with the reserves first and only then gets debited, then that will work out just fine.
Thanks for spotting the payor/payee mistakes. Oops.
Maybe we can refine/ complicate issue further. (Thanks to Google):
"....There are three parties involved in the processing of a cheque: the DRAWER, who issues the cheque and holds the bank account; the DRAWEE, which is the financial institution; and the PAYEE, who is the person whose name appears on the cheque and will receive the funds."
I'm from Australia where reserves would be interpreted as
electronic exchange settlement balances for interbank payment transfers. I did not realize US mainly regards reserves as cash on reserve. Does the FED also regard the bank's electronic balances at the FED reserves too?
Settlement balances = "reserves". As I note, I only use reserves because that is what American textbooks use (and its shorter). Technically, would only be reserves in a system where banks have to hold required reserves.
Yes, the balances are not only reserves, but also no one but I realizes that physical cash in cashier drawers, et cetera, "vault cash" also counts toward reserves, so I guess it's the same in Australia and you didn't realize.
So my point was that pre-2008, pre-QE, just because a bank were nicely above its reserve ratio requirement ("ratio of reserves to net transaction deposits"), it doesn't imply it held any reserve balances at all, because five sixths of what we thought were the reserves it was using to transact with were vault cash which also was counting towards the required sum, so some (all?) banks were transacting between themselves without pre-existing reserves.
Also, the other one-sixth, the actual reserve balances, people assume were equally distributed. But as a point of logic, they would all have been sitting in the accounts of the primary dealers in preparation for the next Treasury auction, as "total reserve balances" across all banks is very roughly the sum required for a single Treasury auction of that period (happened four or five days a week).
For reserve balance fans who won't let go, one might point out that Stephanie Kelton says that the act of entering a payment file by the Treasury creates the reserve balance, and then suggest that a payor bank's payment file entry does the same in the payee account, but its either cross-cancelled by the fact that each payor is either also a payee from another bank, in a thousand bank cycle of payments, or it borrows at the market rate a credit back to itself to complete the chain, from a payee, rather than from the C.B., which deletes the credit before it can form.
Paragraph beginning with 'Unlike electronic payments' correct:
"foe non-sufficient funds (“NSF cheque”),and the payee will be hit with a cash penalty for “bouncing” the cheque."
foe to for
Payee to Payor