An Observation on Central Bank Coordination

Sunday March 13, 2016

There’s an interesting story about a typo and an electronic robbery from the Bangladesh Bank. Basically, a bunch of hackers issued fake transfer orders for the Bangladesh Bank account at the New York Fed. We’ll toss it to Reuters for the details:

One detail in this story sticks out:

Bangladesh Bank has billions of dollars in a current account with the Fed, which it uses for international settlements.

Wait, why is Bangladesh Bank executing international settlements through the New York Fed? I though international settlements were handled through the Bank for International Settlements, a quiet institution in Basel that processes a lot of transactions. Think about it like this: In the same way a central bank coordinates payments among private banks within a country, the BIS does this among central banks. They also provide some regulatory guidance to member banks, but that’s not important right now.

Well, today I learned not everyone is a member of BIS. Only about 60 countries are on the list, and Bangladesh is not one of them. But Bangladeshis will want to make international transactions, anyway, and the Bangladesh Bank will want to facilitate those transactions. So they do it through the New York Fed.

Image by Wladyslaw Disk / Wikimedia Commons.