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If bank credit isn't backed by fiat currency (fractionally reserved or otherwise), then does it have any real basis to it?
by wu-ikkyu 9y ago
If bank credit isn't backed by fiat currency (fractionally reserved or otherwise), then does it have any real basis to it?
- quadrangle 9y agoIt's still enforced legally but tempered by bankruptcy laws. It's backed by the supposed (hoped for) future productivity of the debtor. Or by real property (like a house in the case of a mortgage).
- jganetsk 9y agoIt is backed by the fact there is plenty of demand for it. The demand comes from the fact that people need to attain bank credit to pay off their debts to the banks. This is very evident when you think of how banks used to work: they would actually issue paper notes denominated in the desired unit of account (the national currency). To pay back your debts (or else suffer the consequences), you had to acquire and return the notes to the bank. That generated demand for the notes. People who were not banks would start accepting the notes because of the demand. Then banks decided they could make money by accepting notes from other banks as payment (for a fee). At the end of the day, banks would exchange and retire notes collected this way.