ABSTRACT

This chapter discusses the financial relations that make banks powerful and extend the argument to cover the effect of the balance-of-payments structure upon the richness or power of a country whose currency serves as international money. The United States and other capitalist economies are intensely financial, and standard economic theory ignores the financial aspects of their economies. Either directly or indirectly, commercial banks finance part of their asset holdings by debts owned by the central bank. By acquiring new assets even as its other assets are maturing, the central bank makes it possible for commercial banks to sustain their total asset holdings. Whereas payments to the central bank are considered due to terms on contracts owned by the central bank, asset acquisition by the commercial bank is at the initiative of the central bank or at terms set by the central bank. In world the central bank and the government of the key-currency country must work together.