These are redeamable across the network.
This could work fine for a bit.
Then the gateways would realise they have all these assets sitting about that don't need to be traded immediately.
Perhaps they invest them, or use them to pay off a few business costs such as AML bonds or business bribes depending on the country. Perhaps they convert the assets to another currency for a bit.
All works well for a bit.
Then boom! some kind of worldwide shock occurs, such as dramatic change in gold price, invasion of a country or even capital controls and account robbing in previously untouchable developed world countries and currencies, such as Cyprus and the Euro.
Suddenly the value of an asset changes fast.
What happens if the gateway is holding its assets in the falling currency but owes locals in a variety of currencies?
What happens if companies have developed off Ripple relationships across borders to settle their on ripple IOUs?
What happens if govt steals the cash or stops it leaving the country?
Suddenly those gateways are subject to a credit run.
This can then diseminate across the whole ripple network as everyone sees what has happened and tries to redeem their IOUs quickly.
It's called a 'Bank Run' and is one of the inevitable consequences of fractional reserve lending in large leveraged economies.
What if the Ripple network becomes 'too big to fail' and the XRPs have to be inflated, punishing all savers and taxpayers to the benefit of the banks / gateways?
Bitcoin has a built in release valve as the currency can be withdrawn to private hands long before the problem spirals out of control in the way a debt based network will.
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If tl;dr:
Ripple is shit.
Bitcoin amazes me every day.
