Issuing paper

The Federal Reserve decides which banks will issue paper, what kind and how much at any point in time. The United Nations and the World Bank have similar authority with PBGs, but they too must coordinate with the Fed.

A commitment holder and a bank work together to operate a trading program. The commitment holder is the source of funds. It establishes lists of banks from which it will accept paper. The lists reflect the preferences of the owners of the funds. Obviously, the strongest banks will appear on the lists with the highest frequency. This causes them to benefit the most from this activity, The strongest banks attract the commitment holders to operate the trading programs within their establishments.

Banks do the actual trading. They inquire through the Fed to determine who is issuing instruments. They are also informed about the banks that wish to acquire paper. They arrange the trades, verify and confirm the securities and clear the trades. The commitment holder is an integral part of the process although it does not have to be present to make it function. The commitment holder simply must leave the required amount of funds at the trading bank in a custody account after all the procedures have been properly executed.

The commitment holder provides the source of funds which is used to purchase the initial issue of paper and immediately resells it to another bank. There is no room in the system for anyone without funds. This is a principal to principal (bank to bank) business only. The trading bank executes the trades and finds buyers for issued paper. Outsiders can access the system only by finding a commitment holder and lodging funds with it or with one of its sub-licenses. The commitment holder spends most of its time finding "investors."