For this purpose, they have to pledge collateral in the form of book-entry Treasury securities. Book-entry Treasury securities, like bank reserves, are transferred over Fedwire. If Bank of Montreal in Canada sells deutschemarks to Hong Kong Shanghai in London for dollars, Bank of Montreal will turn over to Hong Kong Shanghai a deutschemark deposit at some bank in Germany, while Hong Kong Shanghai will turn over to Bank of Montreal a dollar deposit at a bank in New York. Meanwhile, Bank of Montreal will have a bank account in Germany in which it holds deutschemarks, while Hong Kong Shanghai will have an account in New York at which it holds dollars. Through these accounts payments may be made or received in, respectively, U.S. dollars, Hong Kong dollars, or Swiss francs.
Some foreign banks offer their customers checking accounts in the U.S. dollars.
They may have hundreds or thousands of local customers holding such accounts. The bank, meanwhile, will pool all these obligations in the form of a single account held at a U.S. bank. For example, Banco de Credito Centroamericano in Nicaragua offers payable through accounts. It holds a correspondent dollar account at Barclays Bank, Miami Agency. If Banco de Credito account holders write dollar checks to each other in Nicaragua, this only shows up as internal accounting entries on the books of Banco de Credito.