Monetary Effects in Trade Imbalances

[@lionelshaneyfelt5607]

Wayne Make more videos!

[@BlueIceAce2015]

It's been a long time coming. Thanks for doing this!

[@TheBalancedAmerican]

Skip to 7:11 to jump to the meat of the matter. Otherwise you have to listen to me blather about the structure of the the balance sheets. =P

[@braienkris517]

I've watched all of your recent videos and I admit this is the best. My perspective is the same as yours.....the intermediate foreign banks don't need to convert the cash they hold as it'll be soon used in another trade when a customer wants to pay to a foreign country. That's why sometimes it's not possible to do a foreign transaction because your bank "float" of the foreign money is not enough. Banks need foreign money to increase their "float" which will enable its customers to do foreign transfer money. Hope this helps.

[@cynicalskeptic]

I watched the debate on Twitter and now I am even more confused than I was before. But this is crucial in understanding sectoral balances so good work!

[@TheBalancedAmerican]

Ack! It is some esoteric stuff =P My general case is that a trade surplus finances new deposits in the surplus country. I can't make the accounting work any other way. Thanks for watching! =)

[@cynicalskeptic]

Im with you on that, what confuses is me is the people who say it doesnt. Now theoretically maybe not, but in real life it surely does. PS I was watching your video on 4k 55" screen and could make out what you were doing, can you rearrange your presentations in the future? You are not using one third of your screen at the bottom.

[@TheBalancedAmerican]

Cynical Sceptic Youre absolutely right. I know very little about screen filming. Its would be helpful if I could zoom a bit. :/

[@cynicalskeptic]

Can you upload that spreadsheet somewhere so we can play around for ourselves?

[@TheBalancedAmerican]

Here ya go :) The tab you want is 'Forex (3)' drive.google.com/file/d/1UFNILXLy49kPk6EymJ2XbQXRnMNjK335/view

[@RealMacro]

Correct. I don't want use endo or exo. That assumes banks borrow from fed which private banks dont. Loans create deposits. I will use NFA, Net Financial Assets NDFA, Net Debt Financial Assets bank loans that create deposits NFA+ export income which can buy treasuries and earn interest indefinitely You started with $100 that came from Govt. NFA. The doesn't have to be the case. The retailer could borrow Net Debt Financisl Assets. NDFA and it will still end up as NFA+ for Brazil. $ are $ to Brazil, if they are NFA or NDFA makes no difference to them. The manufacturer can decide not to exchange it for BRL and just keep it in USD to start their own retail brand. If at some point many manufacturers decide to do the same. And opt not to exchange dollars for BRL and at some point they hold say $12000 but there are only BRL 5000 in existence. Than in that rare case, the money supply in brazil must expand to reflect that extra 7000.

[@TheBalancedAmerican]

Thanks for the feedback my friend! I love your disaggregation here. I had come to a similar conclusion if BRL continued to accumulate dollars. This would place pressure on the interbank rate in Brazil, which would prompt its CB to create more R$. I need to review your latest content, its been a while and your ideas here are a more advanced elaboration of my general point. :)

[@shubhamsingla9340]

Hello wayne Have you ever thought how capital markets work in specific country? Like in india we run trade defecit in goods, services (current account) but have good amount coming through capital accounts.I never understood how these works.... essentially this is balance of payment concept.But i wonder why can't just india print more and create a private fund and buy in capital markets when foreign holders decide to sell in capital markets??

[@ArilandoArilando]

Never did those follow up videos huh

[@zvone4016]

Hi Wayne. Thank you for your new post. I am not sure if i understood well, but why do you need foreign banks to make international trade possible. For example, i come from Croatia, and if Croatian company did a trade with brazilian company do we need brazilian bank branch in Croatia, or a croatian bank could also hold brazilian reals and exchange currencies ?

[@TheBalancedAmerican]

You're right! There is no specific need to have two different banks, so long as the single bank has branches in both Croatia and Brazil, AND the recipient of the payment is also a customer of the same bank. Essentially, it is possible that the entities involved in the transaction are both customers of the same bank. If the entities involved are customers of different banks, than the buyer's bank would have to find funding in the local currency. In the FX video, this is accomplished by Itau swapping US Dollars for Brazilian Real. Also important, there is no requirement that Itau fund its outflows by dumping the foreign currency. It could also borrow Real in the domestic interbank market. A side effect of this dynamic would appear in the data as upward pressure on the interbank rate in the surplus country. :)

[@jonnymahony9402]

Are you pro MMT😁?