I really appreciates everyone’s help with this. I think I’m starting to see through the hazy parts. In regard to foreign exchange through a bank, I guess it comes do to a bank is able to hold reserves or assets in whatever it wants; jelly beans if it so desires, just as long as it has the local currency reserves to cover depositors withdrawals.
Going back to the CAD/USD example; I was thinking that in a way the US dollars become part of the Canadian banks reserves (at the expense of CAD). But maybe that isn’t the case at all. Rather, the US dollars sit outside the bank’s reserves. Then when someone buys the USD from the bank, the CAD they give the bank goes back into the banks reserves; because previously they were short, as the bank had taken money from their CAD to exchange for USD in the first place. If a person already has an account with the bank and they remove their money from savings to exchange for USD, then the banks reserves don’t change. The bank would need to attract CAD from another source to buy the USD. This would add to their CAD reserves and remove USD. Because in the end, as Johnathan mentioned, the Canadian bank doesn’t want to hold dollars.
I was overlooking that if the Canadian bank uses 5% of its reserves to satisfy a CAD to USD request, that even if the Canadian bank has the USD in their possession, it does them no good. They would still be 5% short in the CAD holdings. And if they wanted to get back to the level of CAD reserves they were prior to the exchange, they will need to sell those USD. So going back to my other question about who has “claim” to that money. Really no one; the USD just kind of sits there until someone wants to buy it. And the bank can’t use the USD to buy goods, it’s not like it’s “free money”, because they need to replenish their CAD reserves at some point.
I may not be getting it across well, but it makes sense to me now. Thanks everyone.
The more I learn about modern money workings, the more I’m angry/concerned/frustrated. It’s become so unnecessarily complicated. As Esuric mentioned, there really isn’t anything there. No real underlying anything. Just “money” fabricated at will to benefit those that control it.