The high street banks don't want to be carrying around huge quantities of money because it's dangerous, inconvenient and expensive. You have to hire security guards for that type of money. So what they do is they pay each other in what is an electronic version of cash which in the industry is known as Central Bank Reserves.
This is why in the event of a crisis the risk is transferred to the taxpayer. But even during normal times banks receive numerous guarantees and benefits beyond the right to create money. Bill, by the way, I know the Bank of America is a very big bank, it happens that I have $32 there myself. Just between us, what assurance do I have that this money is safe? Well, all deposits up to $10,000 are insured by the Federal Government in Washington.
The amount of central reserve currency Bank A has at the Bank of England is reduced by the corresponding amount that Bank B receives. This is the importance of central reserve currency to banks.
Now, the best way to do that, in my opinion, is to make sure that money is issued into the economy only for productive investment, for productive goods and services, so money goes in to help a small business to start up, which creates jobs, which creates additional purchasing power, which means there's no inflation.
As more of the country's resources and industries are privatised, the private sector takes on more debt. As a result, more money is created and there is a boom. Some private equity companies have taken this theory to the extreme, engaging in a practice known as "a leveraged buyout", where a company is purchased at an often inflated price, and the purchase price is transferred to the business as a debt.
It will rise and it will keep rising and the faster the economy is growing, the faster the debt will rise, and then give it another 3 to 5 years, we'll be back where we were. The debt will become too much, people will start defaulting again.
Foreign exchange reserves cannot be directly used for domestic spending. The money can only be spent abroad or on imports. A country with a large balance of trade deficit relies on its creditors to spend the imbalances accrued in its own market.