3 ms·

Yep, but that’s a legal requirement tacked on by governments, not an actual theoretical requirement.

• notahacker 9y ago
  Sure, but assuming Tether are lying about their instrument being fully backed it doesn't meet any of the theoretical requirements either. Fractional reserve relies on banks being strongly incentivised not to issue too many bank notes because they earn profits only on repaid loans issued to creditworthy borrowers, not from the act of printing the bank note to sell for currency. Even in the absence of regulation, centralised clearing and interbank loan markets and a central bank as lender of last resort, fractional reserve depends on bank notes circulating and retaining value because enough people actually need them to meet debt repayment obligations, not on sufficient numbers of people believing that it's fully backed by the financial asset they actually want in their portfolio. (Also, the history of bank runs suggests the legal requirement might have been a rather good idea)
  • qubex 9y ago
    I’m a macroeconomist, a disbeliever in current cryptocurrencies (because they do not allow fractional reserve banking because they have finite supply) and I absolutely agree with you. I was being facetious further up, I thought that was clear (but apparently it wasn’t).
    • notahacker 9y ago
      Fair enough. Difficult to tell sarcasm from true believing from shilling on crypto threads these days :-)