Topic: Please clarify Fractional-Reserve Banking with respect to Bitcoin (Read 872 times)
In the first place, leave banks out of the equation and everything will start to make sense. The problem is we are trying to imagine a scenario about lending and creating money out of nowhere which is plaguing today's financial system and apply it to be the same in bitcoin. You can't claim that you own bitcoin until you can prove it in the blockchain.
Why would we need fracional reserve when 1 Bitcoin can be divided as much as you want? supply and demand will make the price lower or higher. Even if there was 1 BTC availible only, he economy would still function under it (extreme hypothetical scenareo just for exemplary purposes)
This scenario does not require deposit receipts that are treated as money, so what am I not getting?
Because FRB is an utterly misleading term. Banks do not create money out of thin air (as you are made to believe). It is a Central Bank that actually creates new money as required (or as it sees appropriate). Private banks only act on behalf of a Central Bank, as its proxies in creating new money through loans. To better understand this, think of the whole banking system as just one bank with many branches, which creates new money through these branches issuing loans (as fiat)...
And neither deposits (to create new money) nor deposit receipts (to serve as money) are required, since the former are secondary to money creation while the latter can be said to "exist" as newly printed fiat
Why would Bitcoin FRB need deposit receipts (or Bitcoin IOUs) that are considered money?
Because there is no Central Bank which can print real Bitcoins (unlike fiat)
Well, it is a day later and I was really hoping for an answer to my question: Why would Bitcoin FRB need deposit receipts (or Bitcoin IOUs) that are considered money?
Imagine this scenario, If a bank has deposits receipts $100, kept 10% as fractual reserve $10 and lend out 90% $90. If $90 is deposited back in bank. Then bank keeps 10% as fractual reserve $9 and lend out 90% $81. At the end the total money is still $10 + $9 + $81 = $100 So how could be the money supply is 10 times than the base money supply?
To make things simpler, you can take a system where there are no reserve requirements at all. So someone deposits 100 dollars, and the bank lends this amount to someone else creating a new deposit. Thereby, the bank now has 200 dollars in its balances and only 100 dollars in its vault, and thus can create new money ad infinitum (in reality, as long as there is demand for loans)...
These balances are considered as money since they can be used as a means of payment for goods and services (e.g. by drawing checks and drafts) as well as to settle debts and pay taxes
Please help me understand why Fractional-Reserve Banking with Bitcoin would require deposit receipts that are treated as money. I don't think that is the case, but people (including economists) that I believe should know the answer do.
My understanding of Fractional-Reserve Banking is that it basically (though not actually) works like this:
Assuming a 10% reserve ratio, banks take in deposits and then loan out 90% of those deposits. The loaned money is deposited back into banks, which then loan out 90% of those deposits, and so on. Eventually, the apparent money supply is 10 times the base money supply.
This scenario does not require deposit receipts that are treated as money, so what am I not getting?
FRB actually works more like virtual particles on the event horizon of a black hole, where a bank creates money by creating a loan. It can't work that way with Bitcoin because banks can't create bitcoins, but wouldn't the basic scenario that I outlined above work?
My understanding of Fractional-Reserve Banking is that it basically (though not actually) works like this:
Assuming a 10% reserve ratio, banks take in deposits and then loan out 90% of those deposits. The loaned money is deposited back into banks, which then loan out 90% of those deposits, and so on. Eventually, the apparent money supply is 10 times the base money supply.
This scenario does not require deposit receipts that are treated as money, so what am I not getting?
FRB actually works more like virtual particles on the event horizon of a black hole, where a bank creates money by creating a loan. It can't work that way with Bitcoin because banks can't create bitcoins, but wouldn't the basic scenario that I outlined above work?
You don't need to keep your bitcoins in a bank, you can keep them in a wallet or cold storage. If you do that then banks can't fractionally reserve them and create money from nothing, then the whole BS system that we have now won't be replicated.
That might mean a few bankers losing their jobs and no more depressions in the future, but we'll just have to live with that!
Please help me understand why Fractional-Reserve Banking with Bitcoin would require deposit receipts that are treated as money. I don't think that is the case, but people (including economists) that I believe should know the answer do.
My understanding of Fractional-Reserve Banking is that it basically (though not actually) works like this:
Assuming a 10% reserve ratio, banks take in deposits and then loan out 90% of those deposits. The loaned money is deposited back into banks, which then loan out 90% of those deposits, and so on. Eventually, the apparent money supply is 10 times the base money supply.
This scenario does not require deposit receipts that are treated as money, so what am I not getting?
FRB actually works more like virtual particles on the event horizon of a black hole, where a bank creates money by creating a loan. It can't work that way with Bitcoin because banks can't create bitcoins, but wouldn't the basic scenario that I outlined above work?
Imagine this scenario, If a bank has deposits receipts $100, kept 10% as fractual reserve $10 and lend out 90% $90. If $90 is deposited back in bank. Then bank keeps 10% as fractual reserve $9 and lend out 90% $81. At the end the total money is still $10 + $9 + $81 = $100 So how could be the money supply is 10 times than the base money supply? My understanding of Fractional-Reserve Banking is that it basically (though not actually) works like this:
Assuming a 10% reserve ratio, banks take in deposits and then loan out 90% of those deposits. The loaned money is deposited back into banks, which then loan out 90% of those deposits, and so on. Eventually, the apparent money supply is 10 times the base money supply.
This scenario does not require deposit receipts that are treated as money, so what am I not getting?
FRB actually works more like virtual particles on the event horizon of a black hole, where a bank creates money by creating a loan. It can't work that way with Bitcoin because banks can't create bitcoins, but wouldn't the basic scenario that I outlined above work?
Banks can't create bitcoins, but they can create usury on bitcoins.
Please help me understand why Fractional-Reserve Banking with Bitcoin would require deposit receipts that are treated as money. I don't think that is the case, but people (including economists) that I believe should know the answer do.
My understanding of Fractional-Reserve Banking is that it basically (though not actually) works like this:
Assuming a 10% reserve ratio, banks take in deposits and then loan out 90% of those deposits. The loaned money is deposited back into banks, which then loan out 90% of those deposits, and so on. Eventually, the apparent money supply is 10 times the base money supply.
This scenario does not require deposit receipts that are treated as money, so what am I not getting?
FRB actually works more like virtual particles on the event horizon of a black hole, where a bank creates money by creating a loan. It can't work that way with Bitcoin because banks can't create bitcoins, but wouldn't the basic scenario that I outlined above work?
My understanding of Fractional-Reserve Banking is that it basically (though not actually) works like this:
Assuming a 10% reserve ratio, banks take in deposits and then loan out 90% of those deposits. The loaned money is deposited back into banks, which then loan out 90% of those deposits, and so on. Eventually, the apparent money supply is 10 times the base money supply.
This scenario does not require deposit receipts that are treated as money, so what am I not getting?
FRB actually works more like virtual particles on the event horizon of a black hole, where a bank creates money by creating a loan. It can't work that way with Bitcoin because banks can't create bitcoins, but wouldn't the basic scenario that I outlined above work?
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