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In that model the bank is selling you a coin for USD. It takes your $100 and issues you 100 coins. That $100 is no longer yours--you have the coins instead, tho
by bradleyjg 9y ago
In that model the bank is selling you a coin for USD. It takes your $100 and issues you 100 coins. That $100 is no longer yours--you have the coins instead, though the bank promises that it will buy them back at a $1 per coin.
On their books they have a liability of $100 (the repurchase obligation) and they have $100 in cash. You're right that it doesn't affect their reserves, but it also doesn't act as a multiplier. The liabilities and assets balance. In order for there to be a multiplier the bank would have to issue coins and still allow the customer to access the cash as a deposit. Thus the coins would be being lent as opposed to sold.
- Ajedi32 9y agoRight. How is that any different from when you deposit $100 in the bank and the bank promises to give you your $100 back when you ask for it? That doesn't reduce their reserves; it _increases_ them. Only difference with using coins this way is that rather than the $100 being tied to you as an individual, it'd instead be tied to the coin itself. (So whoever possesses $100 worth of the bank's coin can get that same amount back in USD.)
- dragonwriter 9y agoRight. Basically a redeemable pegged coin is equivalent to a no-discount (zero-yield) bearer deposit note.
- Ajedi32 9y agoThanks for the search keyword. Seems like bearer deposit notes are indeed legal. (Though it seems like they're not insured.) So it seems like this concept could work after all?