"if a country has lots of flighty locals who view currency weakness as a reason to pull money out of the banking system — do a capital flight, in other words"
Bank deposit-holders can't "pull money out of the banking system." They can only xfer it to other holders/bank accounts. No effect on the outstanding stock of M2. ??? Thanks.
They could buy black market dollars in put it in shoe boxes under their mattress? Or they could just buy $ stable coin, which effectively transfers their deposits to an entity to buys US T-bills away from an entity that lends money within whatever country they’re in. This latter is being touted as a huge advantage by US stablecoin backers in both the public and private sectors because it punishes alleged monetary misrule in the country; brings in more buyers for US Treasuries, and enhances “dollar dominance.”
On cash in mattresses, I know you know this: 1. currency & deposits only comprise ~15% of national/domestic assets. 2. Physical currency only comprises ~10% of that. 3. Much/most of that physical currency is in suitcases and vaults full off $100 bills in Colombia, Afghanistan, Russia... 4. Bundles of cash make mattresses impossibly lumpy and uncomfortable to sleep on. 😉
Buying stablecoin etc: No matter what you're buying, your US dollar deposits go into some other entitie's $-denominated account in a US bank or other financial institution (MMF, foreign bank, etc.) that uses a Fed-chartered "commercial" bank as its "correspondent [with the Fed] bank." The dollar deposits don't go away; holders can only transfer them to a different account. (Or pay off their bank debt.)
Corollary: the only way deposits can disappear is via loan paybacks. To paraphrase Milton Friedman, "banks (and governments) have both printing presses and furnaces."
Something I don't understand in article #2:
"if a country has lots of flighty locals who view currency weakness as a reason to pull money out of the banking system — do a capital flight, in other words"
Bank deposit-holders can't "pull money out of the banking system." They can only xfer it to other holders/bank accounts. No effect on the outstanding stock of M2. ??? Thanks.
They could buy black market dollars in put it in shoe boxes under their mattress? Or they could just buy $ stable coin, which effectively transfers their deposits to an entity to buys US T-bills away from an entity that lends money within whatever country they’re in. This latter is being touted as a huge advantage by US stablecoin backers in both the public and private sectors because it punishes alleged monetary misrule in the country; brings in more buyers for US Treasuries, and enhances “dollar dominance.”
On cash in mattresses, I know you know this: 1. currency & deposits only comprise ~15% of national/domestic assets. 2. Physical currency only comprises ~10% of that. 3. Much/most of that physical currency is in suitcases and vaults full off $100 bills in Colombia, Afghanistan, Russia... 4. Bundles of cash make mattresses impossibly lumpy and uncomfortable to sleep on. 😉
Buying stablecoin etc: No matter what you're buying, your US dollar deposits go into some other entitie's $-denominated account in a US bank or other financial institution (MMF, foreign bank, etc.) that uses a Fed-chartered "commercial" bank as its "correspondent [with the Fed] bank." The dollar deposits don't go away; holders can only transfer them to a different account. (Or pay off their bank debt.)
Until 2008, bank deposits (~M2) *only* came from one thing: commercial bank net lending. See the third graph here: https://wealtheconomics.substack.com/p/where-does-wealth-come-from That got messier with QE plus all the (reverse-)repo bidness, but still.
Corollary: the only way deposits can disappear is via loan paybacks. To paraphrase Milton Friedman, "banks (and governments) have both printing presses and furnaces."
??
Cheers,
Steve