How it it different from what banks do? (Except for a central regulator.)
Your exception is the answer.
Only the central regulator can "mint" money and doing so has real world consequences. The central regulator has financial incentives to limit this sort of activity.
The bizarro world of crypto has no such regulation and as a result, it is inherently unstable.
The proof of this is right in front of you --- it is the fact that "stable coins" exist. The only way to bring stability to the bizarro world of crypto is by tying it to "fiat" --- which is the very thing crypto is supposedly working to eliminate.
I sure hope we don't end up in the same place where the monetary system is only being held up by the fact that there is more debt than money creating an endless competition for the limited quantity of money that exists in order to pay off ever-increasing debts and expenses with a currency that is continually debased throughout the process.
They are being loaned ETH to cover withdrawals and prevent what would amount to a bank run, not stablecoins. This entire comment chain is stupid and pointless.
>the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.
Because while banks hold duration, the net value of their current assets, future asset streams, and equity is above zero. Indeed the core focus of the business and regulatory side is ensuring this is so.
The central regulator caveat is also a huge caveat to brush aside. During the last round of systemic stress, the banking system essentially got a guarantee that all uninsured deposits would be protected, and banks were allowed to post their collateral for liquidity at terms that no other business has access to.
What OP is referencing is the oft-seen practice in the crypto space where failed entities fill an asset hole with propped up tokens, essentially transforming their paper loss on the balance sheet into liquidity risk that doesn't show as readily.
The important point here is that in the latter case, the entity may be fully insolvent, even after accounting for future cashflows on loans. When it comes to banks, even the left tail cases like SVB, their "problem assets" are things like long term treasuries, which are way down the risk curve when compared to the ponzi-tokenonics style "stablecoins" that we've seen unwind over the past few years.
I often read this sort of comment from crypto-defenders, but is it what banks do?
I’m relatively naive about these things, but my impression is that a bank losing this proportion of their assets can’t just ‘pretend’ they have the money, or create ‘new’ money.
That's one model/theory for how modern money creation works.
Another is modern monetary theory (MMT), and in that, commercial banks are indeed the primary creators of money, with the central bank playing a technically more passive role.
Still, in either model of money creation (i.e. classical "money multiplier" and MMT), governmental regulators (which can be the central bank or others) do ultimately control the rate of money creation via various mechanisms.
Banks don't print money for each other, and if they get money for free it's backstopped by the government and hence all of us. Crypto wants this single aspect but none of the central regulation.
Both systems stink for those at the end of the chain, i.e. us; you can decide which one is worse.
not exactly true - Binance is indeed "printing money", just with no centralized regulation. When the Feds do it the expectation is that they are aware of the long-term impacts of doing so, and include in their calculation. For crypto it's the opposite: do it before you erode trust & goodwill to the point where it's no longer valuable. I see it more like it is very different than printing money in a economy that's perceived as stable and quite similar to printing money in one where the people have no faith in the value of sovereign currency. So the crypo-promoters are right about the use-case in certain jurisdictions, but the problem is that's not where the wealth is, so they target rich economies that tend to have stable government currencies & established banking, and do not need crypto for legitimate tasks.
I doubt they can because they peg it to USD, do you think they can pay aws bill with busd??? maybe you can but people with busd would convert it to usd at some point
How it it different from what banks do? (Except for a central regulator.)
Your exception is the answer.
Only the central regulator can "mint" money and doing so has real world consequences. The central regulator has financial incentives to limit this sort of activity.
The bizarro world of crypto has no such regulation and as a result, it is inherently unstable.
The proof of this is right in front of you --- it is the fact that "stable coins" exist. The only way to bring stability to the bizarro world of crypto is by tying it to "fiat" --- which is the very thing crypto is supposedly working to eliminate.
Contradict and hypocrite much?
I saw a quote somewhere:
>Crypto is speedrunning the entire evolution of finance to end up at the same place
I saw a quote somewhere:
The only thing new about crypto is paper has been replaced by electrons.
Individuals/banks minting their own money has been tried before. It didn't go well.
3 replies →
I sure hope we don't end up in the same place where the monetary system is only being held up by the fact that there is more debt than money creating an endless competition for the limited quantity of money that exists in order to pay off ever-increasing debts and expenses with a currency that is continually debased throughout the process.
2 replies →
They are being loaned ETH to cover withdrawals and prevent what would amount to a bank run, not stablecoins. This entire comment chain is stupid and pointless.
False. Money on your bank account is backed by bank's assets, not by the central regulator. Recommended reading: https://en.wikipedia.org/wiki/Fractional-reserve_banking , M1 money supply, etc.
> The only way to bring stability to the bizarro world of crypto is by tying it to "fiat"
False. It's possible to make stable-coins using just price oracle and collateral. "Fiat" is not necessary. E.g. https://www.liquity.org/bold
> False. Money on your bank account is backed by bank's assets, not by the central regulator. Recommended reading: https://en.wikipedia.org/wiki/Fractional-reserve_banking , M1 money supply, etc.
You didn't even finish reading the first paragraph.
> Bank reserves are held as cash in the bank or as balances in the bank's account at the central bank
The collapse of svb shows how much the central regulator cares about making sure the entire banking system doesn't fall apart, too.
With the way you remarked "false" at the OP, though, I don't expect you're here for an engaging and educational discussion, so I'll leave it here. lol
Regarding fractional reserves...
https://www.federalreserve.gov/newsevents/pressreleases/mone...
>the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses.
It's possible to make stable-coins using just price oracle and collateral.
Most attempts at "algorithmic" stable coins have failed. See TerraDollar, Luna and Titan.
4 replies →
Because while banks hold duration, the net value of their current assets, future asset streams, and equity is above zero. Indeed the core focus of the business and regulatory side is ensuring this is so.
The central regulator caveat is also a huge caveat to brush aside. During the last round of systemic stress, the banking system essentially got a guarantee that all uninsured deposits would be protected, and banks were allowed to post their collateral for liquidity at terms that no other business has access to.
What OP is referencing is the oft-seen practice in the crypto space where failed entities fill an asset hole with propped up tokens, essentially transforming their paper loss on the balance sheet into liquidity risk that doesn't show as readily.
The important point here is that in the latter case, the entity may be fully insolvent, even after accounting for future cashflows on loans. When it comes to banks, even the left tail cases like SVB, their "problem assets" are things like long term treasuries, which are way down the risk curve when compared to the ponzi-tokenonics style "stablecoins" that we've seen unwind over the past few years.
> How it it different from what banks do?
I often read this sort of comment from crypto-defenders, but is it what banks do?
I’m relatively naive about these things, but my impression is that a bank losing this proportion of their assets can’t just ‘pretend’ they have the money, or create ‘new’ money.
That's because they're mistaken. In traditional banking only the central authority can print money, not the individual banks.
If someone stole a trillion dollars from JP Morgan, JP Morgan can't make themselves whole by creating a new trillion dollars.
The central authority might guarantee the customers of JP Morgan that their money is protected, but they won't print money to make the bank whole.
That's one model/theory for how modern money creation works.
Another is modern monetary theory (MMT), and in that, commercial banks are indeed the primary creators of money, with the central bank playing a technically more passive role.
Still, in either model of money creation (i.e. classical "money multiplier" and MMT), governmental regulators (which can be the central bank or others) do ultimately control the rate of money creation via various mechanisms.
False. Banks create money. https://en.wikipedia.org/wiki/Money_creation
2 replies →
Banks don't print money for each other, and if they get money for free it's backstopped by the government and hence all of us. Crypto wants this single aspect but none of the central regulation.
Both systems stink for those at the end of the chain, i.e. us; you can decide which one is worse.
Banks borrow from each other all the time. What do you think "overnight loans" is for? And when banks gives a loan that creates money
FEDS can print money while Binance does not
not exactly true - Binance is indeed "printing money", just with no centralized regulation. When the Feds do it the expectation is that they are aware of the long-term impacts of doing so, and include in their calculation. For crypto it's the opposite: do it before you erode trust & goodwill to the point where it's no longer valuable. I see it more like it is very different than printing money in a economy that's perceived as stable and quite similar to printing money in one where the people have no faith in the value of sovereign currency. So the crypo-promoters are right about the use-case in certain jurisdictions, but the problem is that's not where the wealth is, so they target rich economies that tend to have stable government currencies & established banking, and do not need crypto for legitimate tasks.
I doubt they can because they peg it to USD, do you think they can pay aws bill with busd??? maybe you can but people with busd would convert it to usd at some point