From: John Boyle 
Newsgroups: uk.finance ie.general
Subject: Re: Fixed-rate Loans
Date: Sun, 25 Mar 2007 17:38:44 +0100

In message , Padraig 
Breathnach  writes
>John Boyle  wrote:
>
>>In message <7s1b0350ooa0n53rta035np2hbdas94urr@4ax.com>, Padraig
>>Breathnach  writes
>>>Payments for imports (which I was careful to mention) included?
>>
>>Yes.
>>
>>>Not
>>>all money finds its way into the banking system.
>>
>>True, but legitimate foreign payments do. The mechanism for making a
>>foreign payment ultimately becomes a transfer in sterling in UK between
>>the importer's bank and the exporter's bank's UK office or
>>correspondent. The sterling remains in the UK and in the UK banking
>>system, of which the exporter's bank is a part. There is a corresponding
>>transaction in the exporters country in which the equivalent amount in
>>the currency concerned is transferred from the UK Bank's office (or its
>>correspondent) in that country to the exporter's own bank.
>>
>>No sterling leaves the country and no dosh leaves the UK banking system.
>>
>Hmm. If I (in Ireland) hold a sterling credit in a UK bank which I can
>draw down at will in euros from the Irish representative of that UK
>bank, has it left the UK to come into my ownership?

When you use your ATM card on your UK account in Dublin (as it happens I 
did just this on Thursday) the Bank in Eire debits the withdrawal in 
euros to the account it holds in euros in Dublin for its UK counterpart. 
It then tells the UK branch what it has down and they agree an exchange 
rate and the UK bank debits your account with the equivalent amount in 
£s and credits the account the UK bank holds in the name of its Eire 
counterpart. The effect is that you get Euros to spend in Euroland but 
in UK no sterling has left the country.
>You seem to
>disregard the possibility of the credit being extinguished in the UK
>system.

I am merely pointing out that it is not necessarily correct to assume 
that the UK banks will have to increase interest rates in order to 
replace what has been withdrawn.
>
>>>Central banks are managed by people who know what they are doing
>>>(well, most of them are). So when they set a rate, it is a rate that
>>>is not grossly out of line with what the market would set for itself.
>>>Central banks can tweak rates; that's about their limit.
>>>
>>So September 1992 didnt happen?
>>
>Sure it did. It fell between August and October. More seriously, how
>does is support your view on the power of central banks rather than
>mine?
>
Well I would have thought that what happened spoke for itself but let me 
explain. The BoE (or should I say the Chanc of the Exch) arbitarily 
entered the market and raised the BoEs base rate twice during the day. 
The market certainly did not predict this would happen in any way 
whatsoever, it was out of the blue.
-- 
John Boyle