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Actually, a Bitcoin-based system would, wouldn't it? (just thinking). So far I think people have hard time to figure out all the side effects of 100% reserves.

• ams6110 11y ago
  Well, pretty much it would slam the door on growth and debt financing of anything. Want a house or a car? You will have to pay cash because nobody will have any money to lend. Alternatively, to encourage more deposits so they can make more loans, interest rates will have to go way up. That will depress the stock market, eviscerating the other normal way that businesses finance growth.
  • adventured 11y ago
    No, inevitably bitcoin in such a scenario would end up as the base, and they'd stack an easier to abuse fiat secondary on top again. The demand would be not only overwhelming for such, but probably unavoidable. You've got 1000 bitcoin, and you can lend it out as 'dollars' that can be spent in countless ways by the borrower. Instantly we're back to a system capable of vast credit. All it requires is a non-fixed fiat rider on top of bitcoin, likely controlled by a central government (so that they too can abuse it, for war, deficit spending, buying votes, et al).
• nabla9 11y ago
  No. Bitcoin has no mechanism for limiting lending. It's just fiat asset. Because bitcoin is not local currency anywhere, there are no mandatory reserve requirements for giving loans against bitcoin deposits. Fractional reserve banking affects only for very liquid money-like assets like on demand deposits. Long term deposits create money outside reserve requirements. I think one solution is for banks to start offering people time deposit & credit card combinations. Income goes into time deposit and people use credit cards almost exclusively. Poor people without credit cards might might have to pay a lot for having money in a bank, so they might turn into holding cash.
  • imrehg 11y ago
    Bitcoin has built in limit to lending: you can't, in the classic way it's been done. Whoever has control of coins, has complete control. If I give you any bitcoin in a way that you can spend it, then I don't have a mechanism to get it back without your consent. So no "lent" bitcoin really exists within the system.
    • beeboop 11y ago
      I think the point that needs to be made is that there is very little incentive for a bitcoin owner to store their bitcoins with a bank. People store cash because it's susceptible to being stolen and inconvenient to spend versus a debit card. Banks have complete control of our cash and we can only get it back on their terms, but that doesn't deter most anyone from lending it to them.
      • sampo 11y ago
        > there is very little incentive for a bitcoin owner to store their bitcoins with a bank Well, a bank could offer to pay interest on the deposits.
      • rlpb 11y ago
        Bitcoins are susceptible to being stolen (by rubber hose cryptography if necessary) and when stored safely are inconvenient to spend versus a debit card.
    • johntb86 11y ago
      You might as well say the same thing with physical cash. What makes the loan possible are the contract and the set of laws surrounding that contract. I don't see how bitcoin changes that part.
    • nabla9 11y ago
      Not if everyone uses blockchain directly, but that is already too slow for quick transactions anyway. Banks would add bitcoins as just another currency into their system. They can start giving out credit cards denominated in bitcoin for anyone who saves bitcoins in bank for interest, that effectively creates new money.