Topic: If Bitcoin became the world (Reserve) currency - page 3. (Read 11577 times)

I tend to agree more with rocks' vision than cypherdocs.

But I wonder, why would anyone want to borrow in a deflationary currency when there are loans available in an inflationary one? I think this will be another limiting factor on the fractionalization of BTC, and perhaps the same reason why fractionalization was limited when (indirectly) tied to gold?

i think Bitcoin can be fractionally reserved but by preserving the fiat USD system as an overlay, just like it was supposed to be pre 1971.  levels below 10:1 seem reasonable to me.

this would be the least disruptive of a transition for the world on an ongoing basis and settlements could occur nightly.

of course, this would require a huge revaluation of BTC upwards to fill the huge debt hole the world has created.  this is the strategy many gold bugs have hoped for gold.

This is exactly right.

It is the FED's printing press, and only the FED's printing press, that enables banks to operate at the 1/10 to 1/30 ratios we see today. The reason is markets do not worry about a bank running out of capital because the FED can and will provide "liquidity" on demand.

If a bank operates at 1/30 and runs out of core capital, the bank can swap assets as collateral for dollar funds at face value with the FED. Because of this, banks could run on infinite leverage and it is only regulation which limits them. The system is designed to enable the FED to stop any and all bank runs in their tracks, and as a result there are no bank runs.

In a sense the leverage reported is just an fictitious accounting trick and is not real since the FED can and has simply created money "on demand" as needed for liquidity. If the FED took this away, every single bank would go under within 24 hours. That is exactly what happened to Bear Sterns in '08, the FED decided they needed to make an example of one IB that went too far, selected Bear and said they would not back them further, and Bear was bankrupt in hours.


Under a sound money system banks by necessity keep leverage less than 1/2, because otherwise they could not stop a run since there is no FED to provide "on demand" "liquidity". This was the banking system pre-FED. This would be the banking system under bitcoin. Leverage would be very low and fractional used money would be in line with base bitcoin money.

Nice discussion going on

Fiat is an IOY for product it has no real value and should be rare and hard to obtain for it to work as an IOY.
The value of fiat is based on work that must be exerted to obtain it. (going to work)
The problem is that the supply is not limited thus creating inflation.
If fiat loses value you can get less product for it and visa versa.

The same can be said for bitcoin, it can also be an IOY for product. The same applies, it is rare and hard to obtain for it to work as an IOY.
The value of bitcoin is based on work that must be exerted to obtain it. (mining)
For bitcoin the value is truly limited and deflation will occur.
If bitcoin loses value you can get less product for it and visa versa.

etc. same applies for gold


Why can Bitcoin be an ideal reserve currency?

quote wikipedia "
A reserve currency (or anchor currency) is a currency that is held in significant quantities by governments and institutions as part of their foreign exchange reserves, and that is commonly used in international transactions. Persons who live in a country that issues a reserve currency can purchase imports and borrow across borders more cheaply than persons in other nations because they need not exchange their currency to do so. According to economists such as Valéry Giscard d'Estaing, a former French Minister of Finance and president, a reserve currency gets certain benefits called the exorbitant privilege.[1]
"

Bitcoin has sufficient quantities.
Bitcoin has international transactions.
Bitcoin makes nobody an issuer, all are equal.
Bitcoin can be trusted since nobody controls it.

The only problem is that bitcoin is not equaly distributed and thus wealth is not equally distributed. But then again neither is gold.

No reason why BTC based fractional banking would not work in the new world order. The primary difference would be that if a bank could not deliver on it's obligations, it would be out of business, no government to print up a few more notes out of the ether. So I think in practice fractional reserve banking would happen (because it's good business to gear up from a banks point of view), but at a very low/sensible fraction 1/2->1/4 range. not the 1/10->1/20
banks are currently running at worldwide.

Also, since traditional 'current account' retail model of banking would be out of the window, then deposits would most likely be based on interest baring savings accounts with controlled withdrawal lockins, so the whole banking model would be less volatile because there are no current accounts to 'have a run on' and scaled down.

If bitcoin becomes a world reserve currency then its ok but dont try to ally it with fractionals systems.. is the last thing we want in bitcoin, debt , crisis and useless monetary system

FTFY

You are assuming that banking functions would disappear completely, I doubt that very much.  Mortgages etc will still very much be around, so which particular components of M3 or 2 do you think will not be applicable to a bitcoin denominated economy?

Quite to the contrary, this is your assumption, because you are saying that bitcoins 21M are all there is to "bitcoin's M3", thereby saying the loans fraction is essentially 0.  It would be much wiser to compare bitcoin's 21M coins to the USD MB in my opinion.

You are assuming that banking functions would disappear completely, I doubt that very much.  Mortgages etc will still very much be around, so which particular components of M3 or 2 do you think will not be applicable to a bitcoin denominated economy?

We are not  there yet, but I doubt we are more than a couple of years away from that. Then, all hell will break loose, we reach tipping point where the price starts rising suddenly, and all those that are noty on board start realising fiat is dead and they scramble to get on board too. The tipping point (collapse of fiat) will not only play out in bitcoin but in any hard assets/commodities etc. So gold is a good second hedge especially if you want to trade the peaks of bitcoin on the way up but don't want to be exposed to fiat.

We already have p2p lending on bifinex.  It's only a matter of time until Bitcoin loans are given by banks, backed by credit reporting to the major bureaus and collateral such a mortgage.

You are assuming that banking functions would disappear completely, I doubt that very much.  Mortgages etc will still very much be around, so which particular components of M3 or 2 do you think will not be applicable to a bitcoin denominated economy?

+1 I'm not an expert too, but M3 and even M2 won't do, because they are the mix of existing money (MB) with promise of money - term and saving deposits i.e. money that bank have lended to somebody else. To compare apples with apples we should compare 21M of bitcoins with MB. Which is much smaller than M3.

I am not an expert, but m3 seems like a bad money supply to compare with to me.  Then you assume bitcoins couldn't be used in loans etc. (which they already are).

I am not an expert, but m3 seems like a bad money supply to compare with to me.  Then you assume bitcoins couldn't be used in loans etc. (which they already are).