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Do We Need Central Banks? (2017)

• TekMol 8y ago
  It's interesting to think about how the role of central banks might change in the age of crypto currencies. Governments can print Euros and Dollars. But not Bitcoin and Ethereum. Popular theory is that governments have a good grip on currency usage because they can decide which currencies they accept for tax payments. And because they can force merchants to accept certain currencies. It will be interesting to see if this grip holds up.
  • dogma1138 8y ago
    Since there is no fractional reserve and the blockchain ensures that you have the equivalent of fully correspondent banking with each node in the network there is no need for a central bank on the other hand the blockchain itself can be viewed as is the central bank with the large mining pools acting as its board of directors. That said since no blockchain currently offers a credit system it’s not really possible to test this out fully since there is no true equivalency. A better question would be not if we need central banks but rather should the economic system be based on credit and interest or not.
    • brian_cloutier 8y ago
      There's no fundamental reason why Bitcoin shouldn't also have fractional reserve. I mean, cash also has a fixed supply! (from the Bank's POV) It's not like Chase Bank (or whatever non-central bank) can just print more dollars. If you just sit on your Bitcoin it collects 0% Bitcoin-denominated interest. Maybe you'd prefer to make a loan to a bank and have them pay you interest. For the term of the loan that money isn't sitting in an address you control, it's been given to the bank and they're consequently free to lend it out to other people. Viola, Bitcoin have been created, just not on-chain. EDIT: I was referring to physical dollars. As in, dollar bills and actual coins. I'm aware that Chase creates money, but it cannot literally print money.
      • dogma1138 8y ago
        I didn’t say it should or shouldn’t I said that currently they do not offer any sort of a built-in credit system. And if you do fractional reserve off the blockchain then your crypto isn’t currency but rather closer to say what gold was during the gold standard era. And yes Chase can “print” dollars that’s what the fractional reserve system means for every dollar they store in the central bank they can loan X dollars. When you ask for a mortgage Chase essentially creates most of those dollars out of thin air.
        • Firadeoclus 8y ago
          > currently they do not offer any sort of a built-in credit system. Indeed, but what does credit mean in a trustless system?
      • closeparen 8y ago
        >It's not like Chase Bank (or whatever non-central bank) can just print more dollars. Yes, it can, that's what fractional reserve means. Banks create (most of) the money they lend. This is regulated by the central banks but carried out via ordinary retail banking. When you swipe your credit card, buy a car, etc. money is being created out of thin air. The universe remains balanced because it corresponds to your obligation to repay; as you do, the money ceases to exist.
        • brian_cloutier 8y ago
          I don't think you understand what I was trying to say. I'm well aware that they create money, but they're literally not printing dollars. They do not cause M0 to increase. Nobody but the Treasury can cause physical dollars to be created, but that doesn't prevent fractional reserve from occurring. So, anybody who claims Bitcoin doesn't support fraction reserve based solely on the fact that banks can't create new Bitcoin is incorrect.
          • philipwhiuk 8y ago
            Okay. I'm Chase Bank. How do I issue 600 BTC given I have 20 BTC in my account. There is zero allowance in the protocol for this to happen.
    • TekMol 8y ago
      Well, every crypto currency has it's own characteristics. And therefore different USPs. I don't expect currencies that involve blockchains to be the dominant payment channels of the future. For payments, I expect simpler constructs. Lightning Network already handles most transactions without blockchain interaction. And Iota is a completely blockchainless currency that got traction already. I think there will be many more approaches before one becomes the 'everyday' crypto currency.
    • pjc50 8y ago
      Bitcoin exchanges certainly can "print more bitcoin" in the same sense as fractional reserve banking - the exchange doesn't have to have a stash of coins that exactly corresponds to the sum of bitcoin-denominated customer accounts. Mtgox blew up by being a fractional reserve "bank" destroyed by a "bank run". Heck, bitcoin exchanges can even print ""dollars"" in the form of USDT. > should the economic system be based on credit and interest or not This is almost unavoidable - remember that every not yet paid invoice is a form of credit.
      • deleted 8y ago
        [deleted]
      • dogma1138 8y ago
        Ofc they can’t which is why I said that the crypto needs to support it for it to work properly otherwise the only thing you are left with is some odd options based scheme or a MtGox type ponzy racket.
    • sonnyblarney 8y ago
      Not really. With most cryptos, there is really a strict pre-established monetary policy baked into the algorithm with really no flexibility at all. "A better question would be not if we need central banks but rather should the economic system be based on credit and interest or not." I think a better way to say it: "Do we need monetary policy or not" - and I think the answer is 'yes' - so whether it's crypto or not ... there will have to be some kind of group/committee making those rules, and that's de-facto the central bank.
      • dogma1138 8y ago
        There is a cosensus protocol that can be used to propose and approve a change the crypto, this is no more difficult than changing a monetary policy it’s just different. The code changes isn’t the hard part the policy itself is.
        • sonnyblarney 8y ago
          "hard part the policy itself is" which is ultimately the point of a 'central bank' really.
          • whataretensors 8y ago
            Except they keep scamming...
    • EGreg 8y ago
      We have been dealing with exactly these issues at the Intercoin project (https://intercoin.org https://intercoin.org) Credit is a voluntary thing. Both sides can agree to create credit lines (trustlines) out of thin air without any third party ledger or permission. (Well maybe except Usury laws.) Now the problem with credit is that you don’t know how solvent the debtor is and many debts they have. Credit agencies have sprung up to try to address this somewhat. But the whole POINT of value based money is to introduce a third party representation of real assets, and that real world scarcity requires solving the double spend problem. So the whole thing with every technology is remembering that A paid B, and not forgetting it (eg make collusion really infeasible). Many blockchains are just append only databases stored on every node. They elect a leader based on PoW or PoS and it’s horribly inefficient. There are far better ways. But anyway back to credit. Money is a social phenomenon that benefits from a network effect. A casino’s chips are worthless as a medium of exhange outside the context of the casino and the same goes for JPY, EUR etc. Inside a community currency where everyone began to accept it, you can have the ability to print more money same as a Harvard Facebook has the ability to add features you don’t like but you keep using it. The only difference is that these decisions can be done democratically. So like living in a city whose policies you don’t all agree with. They can use this money for Basic Income and other things like public infrastructure. They can peg to an outside currency AND print/dilute it gradually to redistribute wealth in a voluntary way that even anarchco capitalists will accept. That’s one of the features of Intercoin.
      • philipwhiuk 8y ago
        > There are far better ways. Citation needed since PoS / PoW is the way Bitcoin uses to solve the many generals problem.
        • DoctorOetker 8y ago
          Algorand's solution is in fact pure genious, however there is no implementation yet (that I know of, if someone knows of an implementation, please let me know!).
          • 8y ago
  • shanghaiaway 8y ago
    Governments are never going to adopt a currency controlled by foreign entities.
    • TomMarius 8y ago
      Really? In many parts of the world (outside of the US, e.g. Georgia), dollar is used/accepted even for taxes.
      • shanghaiaway 8y ago
        No country has adopted a foreign currency to make their central bank impotent.
        • kirushik 8y ago
          Seems like at least Ecuador did: > The present currency of Ecuador is the United States dollar. https://en.wikipedia.org/wiki/Currency_of_Ecuador https://en.wikipedia.org/wiki/Currency_of_Ecuador
        • pjc50 8y ago
          Several small countries have "dollarised". Ireland for decades ran an "independent" currency that had the same value as the pound and decimalised on the same day.
        • Reason077 8y ago
          "No country has adopted a foreign currency to make their central bank impotent." There are a number of countries who's currencies are pegged to the US dollar at fixed exchange rates. Notably Hong Kong, as well as gulf states such as the UAE, Saudi Arabia, Qatar, etc. This means their central banks have very limited scope to control domestic money supply and interest rates via monetary policy.
      • bausshf 8y ago
        The US Dollar is an accepted global currency for international trades. So it kinda does make sense they accept it, since they can ultimately use it.
  • partycoder 8y ago
    Bitcoin so far doesn't scale. Not only in terms of transaction fees and processing times... but also at the most basic of levels. What will happen when the blockchain doesn't fit in a median harddrive? The decentralization narrative will go away. Only a few people will have enough storage for the blockchain and you will go back to having to trust someone.
    • gst 8y ago
      > The decentralization narrative will go away. Only a few people will have enough storage for the blockchain and you will go back to having to trust someone. With a pruning client you only need to store a small subset of the blockchain and there are no major changes in regards to trust. Your client still verifies every single transaction, but it removes data from the chain that it won't need anymore in the future (e.g., an old transaction that already has been spent). With a SPV client your client only stores the chain headers and then only requests the required data from a server. SPV clients need a small amount of resources and can run on mobile phones. At the same time most of the important functionality (transaction signing, transaction verification, ...) happens still locally and the level of trust that you need to put into the servers is quite small.
      • hobofan 8y ago
        Even beyond simple pruning, there are techniques that currently don't seem to be in use yet and should make chain-size a non-issue for the near future. If written about it in another comment here before[0]. [0]: https://news.ycombinator.com/item?id=16929524 https://news.ycombinator.com/item?id=16929524
    • samdoidge 8y ago
      That depends if the Bitcoin blockchain size is growing at a faster rate than the storage available on a median hard drive. The blockchain is currently at 160~GB, and I believe it will grow around <60GB a year. [1] In 10 years it may be ~760GB, but the median hard drive shouldn't be too far from this. [1] https://charts.bitcoin.com/chart/blockchain-size https://charts.bitcoin.com/chart/blockchain-size
    • 8y ago
  • emodendroket 8y ago
    So far there does not seem to be any serious threat to any national currency because of cryptocurrency.
    • JohnJamesRambo 8y ago
      What??? https://www.cnbc.com/2017/08/30/venezuela-is-one-of-the-worlds-most-dangerous-places-to-mine-bitcoin.html https://www.cnbc.com/2017/08/30/venezuela-is-one-of-the-worl... https://www.bloomberg.com/news/articles/2017-11-15/bitcoin-surges-in-zimbabwe-after-military-moves-to-seize-power https://www.bloomberg.com/news/articles/2017-11-15/bitcoin-s...
      • emodendroket 8y ago
        At best you can say that people become interested in the same sort of circumstances they're they're interested in conducting transactions in foreign reserve currencies rather than their own.
  • Symmetry 8y ago
    If you have multiple competing cryptocurrencies that seems pretty equivalent to a system of free banking[1] which, well, worked pretty well in Scotland before the Bank of England took over. [1]https://en.wikipedia.org/wiki/Free_banking https://en.wikipedia.org/wiki/Free_banking
• yasp 8y ago
  Probably not. I suspect the Austrian school of economics will be proven right about money and credit eventually.
  • dogma1138 8y ago
    That’s the gist of it the blockchain offers most of the “services” provided by the central banking primarily correspondent banking (well sort off since you don’t have to manage correspondent accounts as you have a single ledger) and it also offers a consensus forum (most of them do at least) which acts as the board of directors of a central bank. The big difference is that unlikely most fiat currencies there is no credit and interest system built into any (mainstream) crypto currency that I am aware off, hence there is also no fractional reserve (outside of what shady exchanges may or may not do).
    • yasp 8y ago
      Even forgetting about cryptocurrency: if each country had a constitutional amendment requiring that its currency be backed 100% with gold reserves (no bi-metalism; no fixed gold pricing), domestic custodianship, annual audits, and the elimination of fractional reserve banking, I suspect the world would be much better off.
    • brian_cloutier 8y ago
      As I pointed out in another comment in this thread, fractional reserve is just as possible with Bitcoin as it is with cash, it's not like banks increase the money supply by printing cash. If you give your money to a bank it won't be sitting in an account you have the key to, it'll be the bank's to control and they'll be free to lend it to other people. This might even be a desirable state of affairs: money which you don't give to a bank collects 0% interest.
      • dogma1138 8y ago
        As I pointed out no where was stated that it’s not technically possible but that it’s not practiced or supported by current mainstream cryptos. If anything some of the larger blockchains “naturally” move towards a “central bank” like model. Say you have a blockchain that requires you to sync 100’s of terabytes if not petabytes of information to setup a new node and 100’s of gigabytes a day to keep it upto date. It’s not going to be feasible for individuals to talk to it directly. Now you already have exchanges that keep ledgers other than the blockchain and that already do most of their transactions off the blockchain these are your banks. In this model the blockchain essentially offers only value store for the exchanges and keeps only the exchanges honest this is essentially your central reserve. The blockchain offers also a consensus protocol where either the miners if it’s PoW or the exchanges if it’s PoS hold the important seats, that’s your board of directors. So yes I don’t think that current crypto is incapable of mimicking the model of banking we currently use some already do it unintentionally to some extent. But currently there isn’t a single crypto that offers a built in fractional reserve and credit system as part of its blockchain its off possible to implement it.
• ckastner 8y ago
  It's a long article and I admit to not heaving read it in its entirety, but... > There are overcapacities in the banking sector of some countries” in the Eurozone. Which country could he have been talking about? Germany boasts by far the largest number of banks – about ten times as many as the global centre of international finance, the UK. Same here in Austria. Per capita, the people employed in the banking sector is significantly higher than in other countries. I work in this sector, and the overcapacity is notable. To question this is basically a statement of ignorance. > 80% of these banks in Germany are local, not-for-profit community banks, which do not pay bankers’ bonuses, and which serve ordinary people and small firms, creating a strong SME sector (the main employer in most countries). Without knowing the German banking sector that well, this is almost certainly hyperbole. I believe he is talking about Genossenschaftsbanken, Raiffeisen et al. There's a historical reason why these banks have most of the banking licenses issued (the 80% he alludes to), but that reason is no longer relevant. It's also misleading, since most of these banks are tiny, basically your typical savings & loan. > Why is the ECB taking policies that are killing the majority of banks in the Eurozone – the beneficial not-for-profit community banks – while helping big banks with its asset purchases? Because it's an anachronism. There was a time in Austria when we had the saying "A Raika (Raiffeisen Bank) and Post in every village", regardless of the village size. This is where the insane 80%-number comes from! This is horribly inefficient. It might have been a valid approach at a time when everything was rural and a village was effectively a microcosm, but in today's world with online banking and such, it's horribly outdated. Operating these banks costs money. These costs are passed on to the customers. Reducing the banking sector size is therefore in the interest of the customers. > Central banks have proposed the abolition of cash No, they haven't. Some guys employed there might have toyed with the idea as a thought experiment, but nobody even close to policy-making has proposed such nonsense, not that it would work anyway. > Central banks have proposed the introduction of central bank cybercurrency I'd trust a central bank far more than Coinbase or any other of the centralized controllers of currently-so-popular cybercurrencies. I've spotted numerous other smells in the article, but the above were the easiest to point out.
  • tehabe 8y ago
    Many co-op banks are merging into bigger ones these days, they are still local banks which are owned by members of the co-op which are usually people from the region. There are also several bigger co-op banks or rather supra-regional banks. But even small and medium sized banks need regulations and that is what the central bank can really do.
• tehabe 8y ago
  The short answer is: Yes. The long answer is, that central banks are in my opinion a way to regulate banking and money supply so that it is useful for the economy and the people. His point that deregulation, liberalisation, and privatisation are bad ideas which are likely to fail is something I can agree on. Also his point that central banks are usually not really accountable for they do and that banking consolidation wasn't a good idea to begin with. I'm still glad to live in a country where they are a lot of local banks, which can help SME much better than big banks, which have only a little branch in town. It matters where decisions are made. The central bank's job is still important, it is lender of last resort and it is an important regulatory body for the banking and financial sector. It is something we need if we want to prevent those financial crisis like in 2008.
• narven 8y ago
  No
• rado 8y ago
  "They" do.
• sonnyblarney 8y ago
  This is a highly problematic article because the basis of his claims revolve around two iffy concepts: 1) That interest rate movements follow the economy, not the other way around. This is false if you simply consider a different time frame for action. If you look at the graphs next to one another it may appear that his theory is correct, but if you consider a longer term causality ... then he's wrong and the bankers are right. 2) More disturbingly - he basically looks at post-war China, German, Japan and Korea as examples of where you can achieve 'high growth' without the neoclassical market liberalism type approach. This is ridiculous. It's very difficult to find value creating projects in mature economies. When your country is flat on it's back after a war - it's dam easy - especially if that country needs to 'rebuild what was already there' after a war (i.e. social/governmental institutions intact) - as opposed to 'building what was never there on the back of nothing' i.e. African countries. Heyzeus everyone knows this. Germany had no factories for gosh sakes. Maybe build some factories? Some roads? Power stations? etc. etc.. Most civilized nations rebounds sharply after disaster and it can be done with 'government intervention' because the investments needed are generally fairly obvious and lend to that governmental kind of stuff anyhow, i.e. infrastructure. So basically, his primary claims are false, the second one, surely so. Surely there are other options than having Central Banks - and they could feasibly operate more mechanically etc. - and surely we could just have stricter rules about money ... but if we want monetary policy of some kind, well then there's going to be a 'Central Bank' however you want to call it, 'committee' or whatever. Even if we go crypto, if there is flex in that crypto, then someone will have to decide how that algorithm works and evolves, and that team will effectively be 'the central bank'.
• sjehay 8y ago
  I zoned out at Section II ("The Central Banking Narrative Has Collapsed") because every single paper he cites is written by him (and in fact so are 18 of the 20 publications he cites in the entire article)
  • sect2k 8y ago
    Yeah, his citations are mostly his own papers, seems like a giant red flag.
    • ironcan 8y ago
      Not his first rodeo either, see his talk page at Wikipedia: https://en.wikipedia.org/wiki/User_talk:Rawjapan https://en.wikipedia.org/wiki/User_talk:Rawjapan
  • notahacker 8y ago
    Weirdly, some of the organizations and theories he's attacking are also his own (he was the lead author on the [weak] Positive Money paper which proposed making the Bank of England directly control the money supply he's now insinuating is some central banker astroturfing campaign, and the unconventional recommendation central banks broaden their remit to tackle Japanese economic stagnation by taking on some of the asset purchase and lending roles of the commercial banking sector which he now appears to consider to be a road to "Orwellian totalitarianism" is literally how he made his name)
    • mendelsd 8y ago
      Weirdly, you haven't addressed the ideas expressed in the article in any substantive way.
    • emodendroket 8y ago
      Hey, if it were actually an astroturf campaign, who would be in a better position to know than one of the principals?
      • 8y ago
• partycoder 8y ago
  It has been only 200 years since the industrial revolution and we have managed to completely waste the planet. https://en.wikipedia.org/wiki/Anthropocene_extinction https://en.wikipedia.org/wiki/Anthropocene_extinction We are running out of topsoil, fresh water, fish, pollinators, oil... the oceans are becoming an acid mess full of plastic, species are going extinct, forests and the ecosystems they contain are disappearing. And all of this has been done in the name of a dumb belief system we call modern economics. A better name for it is collective suicide, because that's what it is in the long term. The idea that you can have a bunch of banks making infinite money to fund an endless amount of economic activities for infinite people has nothing to do with reality: a finite planet with finite resources with finite species that can only go extinct once, and a fragile ecosystem that needs to be taken care of and is beyond our means to repair. Maybe we don't need central banks, but we need fucking reason governing our economy, not the greed of a few shortsighted apes.
  • a008t 8y ago
    I think the question of what is the optimum human population of a country, continent, planet that maximizes prosperity and welfare is an interesting one. Yet, apart from the problem of humans still having to be in actual close physical proximity to each other for economic activity, which results in housing problems in major cities, I do not see the signs of overpopulation or too much economic activity in Western countries. If anything, the situation in terms of the ecology seems to be getting better, not worse.
    • partycoder 8y ago
      No, ecology is not getting better. If you haven't noticed you are in the middle of an extinction event.
    • emodendroket 8y ago
      In what way is ecology getting better, rather than rapidly worse?
      • a008t 8y ago
• alexhutton 8y ago
  The purpose of central banking is to protect private banks from bank runs. Free banking operated prior to the introduction of central banking and it was less stable. In free banking a bank either had the capital to pay its depositors or it didn't, and if it didn't it failed. Although this was a less stable situation it meant that credit couldn't expand indefinitely because each time one of the periodic bank failures occurred it would would reduce the money supply. Another way to prevent credit expanding indefinitely would be to eliminate fractional reserve lending. But that wouldn't work out well for governments who often borrowed from banks to finance wars and other actions that were not supported by their citizens.
  • beefield 8y ago
    It is difficult for me to see how fractional reserve lending could be eliminated given the current level of technology and economical incentives there are for fractional reserve lending. I mean, of course, you could say that regulated financial institutions are not allowed to do fractional reserve banking, but only result of that would be unregulated shadow banking institutions doing the same. (Which, as a side note, is something I would be more than curious to know from cryptocoiners, how they are going to stop fractional reserve banking to flood crypto currency supply, as for sure there is no regulator that is going to stop that.)
    • brian_cloutier 8y ago
      > (Which, as a side note, is something I would be more than curious to know from cryptocoiners, how they are going to stop fractional reserve banking to flood crypto currency supply, as for sure there is no regulator that is going to stop that.) There will for sure be a regulator to stop that. In fact, there are already numerous regulators to stop it. If you want to hold deposits for your customers who happen to be California residents, then you are a bank and will need a banking license from the California Department of Business Oversight. California does not care what currency those deposits are denominated in. I expect this to be true everywhere else in the world, cryptocurrency is not some alternative universe where the old rules won't apply.
• devnull791101 8y ago
  there are good arguments against central banks (optimum currency areas, central planning limitations etc) but this is not one of them
• krmmalik 8y ago
  This is a good paper and presents some really good arguments. For those that want an easier summary of the situation, i interviewed an expert on banking and economics in the middle of last year where he explained how inflation was a tax on the people and a real crime and that it was created by the banks. You can see the full interview here: https://www.youtube.com/watch?v=NfNgntAQ6EM&t=35s https://www.youtube.com/watch?v=NfNgntAQ6EM&t=35s
• chvid 8y ago
  Long winded political statement by some economics professor. Why is this interesting?
  • erikb 8y ago
    I think most people who care have found that everything is better decentralized. Economy, Banking, Networking, Information, etc. But for some reason we humans don't stop creating centralized systems to then suffer from the bad consequences. This illogical points validates some discussion, I'd say.
  • deleted 8y ago
    [deleted]
  • swebs 8y ago
    Who would you rather give an opinion on this topic if not an economics professor?
• erikb 8y ago
  I'm surprised that the obvious isn't mentioned even by the "opponents" of the current banking system. What increases the risk is that banks create investments without safety backups and what destroys economic growth is the huge bonuses they take out of these investments. Maybe it's because I played poker in the past that I can intuitively see it? In poker usually players play against each other in a zero sum game. The best takes the biggest piece of the cake. But when you play in a Casino it will take a "rake", meaning a tax from big payouts. Usually on higher stake games that doesn't matter much, but on lower level stakes the average percentage of rakes is so high, that even the best players can't make a profit. Everybody will lose, no matter his skill. And since the banking system got more and more deregulated they paid themselves higher and higher bonuses. That means even if you are the best investor today, as long as you pay banking fees it's likely you are paying all your profit plus some more, considering a normal 5-digit yearly income. Sometimes I wonder if in fact in this system the best approach is to borrow a lot of money that you know you can't pay back and hope that for some lucky coincidence you are not put into private bankruptcy, maybe keeping yourself afloat by borrowing more money to pay off fees/interest on old debt.
  • a008t 8y ago
    That last paragraph sounds suspiciously close to what most governments with a sovereign currency are doing.
    • osrec 8y ago
      Yes, the last paragraph is pretty much the system every country uses. Look at the UK, for example, where the national debt continues to rise - there is no real plan to pay it off - the system is designed in such a way that overall debt issuance must rise in order to service older debt. It's a horribly unstable system, but unfortunately we seem to have embraced it across the world.
      • EGreg 8y ago
        Suppose all the sovereign debt defaults and is restructured to be 5% of the original. Who loses? Mostly the holders of treasuries. Holders of other assets would seem to be fine! So it seems to me to be like any other default, except on a larger scale. Price the sovereign debt risk into the calculation and diversify into real assets.
• aaronhoffman 8y ago
  What free banking might look like http://www.learnliberty.org/videos/what-free-banking-and-why-should-i-care/ http://www.learnliberty.org/videos/what-free-banking-and-why...
  • notahacker 8y ago
    What free banking actually looked like: https://www.frbatlanta.org/-/media/documents/filelegacydocs/ACFCE.pdf https://www.frbatlanta.org/-/media/documents/filelegacydocs/... TLDR: Banks regularly collapsed and not just because of fraud, but started to collapse less as they got regulated more. The system functioned (for certain values of "functioned"), but shockingly enough the man on the street did not turn out to be better at evaluating a bank's solvency than central banks. They were of course also less able to bail themselves out if they misjudged a bank's solvency.
    • a008t 8y ago
      If you consider fractional reserve banking as fraud (banks should only be allowed to lend out funds that you have lent to the bank for a period of time, not funds that you are merely storing in your checking account; a bank run in this context is when account holders want to withdraw their money and it is not there), the system should be fairly stable without a "lender of last resort". I don't really see why fractional reserve banking is necessary.
      • notahacker 8y ago
        If you want full-reserve banking then (i) that's a different thing from free banking in practice and (ii) full reserve banking would result in interest rates wildly fluctuating because currency reserves are fixed in the short term, and the business sector's need to borrow for cashflow reasons varies. Wildly fluctuating short term interest rates deters longer term investments => slower growth Also, since most full reserve proposals don't ban credit creation altogether (i.e. you can still issue and exchange IOU notes), but simply restrict credit creation and acceptance by institutions calling themselves banks, you end up with the economy relying on an unregulated shadow banking system even more prone to booms and busts to fulfil credit needs.
• nealdt 8y ago
  I would recommend the 'Princes of the Yen' as an incredibly insightful documentary based on Werner's analysis of the Japanese economy.
• nameless912 8y ago
  Ugh. Yes, we need central banks, if for no other reason than that distributed systems are hard. Central banking helps prevent things like double-spends and creating currency out of thin air. Yes, technically cryptocurrencies "solve" the same problem, but at 1000x the energy expenditure and with no guarantee of avoiding a 51% attack by a coordinated network of rogue actors. It's almost like cryptocurrency zealots don't know shit about system design or something.
  • Toine 8y ago
    Most "cryptocurrency zealots" don't know shit about crypto or currencies.
    • spookthesunset 8y ago
      Or math, computer science, finance, politics, government, sociology, scaling, economics or seemingly. Crypto zealots have truly drunk the kool aid and have shut off their critical thinking.
      • DickingAround 8y ago
        Let's try not to over-generalize a group of people. Crypto might be a fad, but that doesn't mean there are no intelligent, knowledgeable people in it.
  • optimuspaul 8y ago
    +1 on those thoughts. I'd add that there are a lot of other things that central banks do that keep the banking system(s) in check and closer to honest. Setting interest rates for example.
  • joker3 8y ago
    In addition, it's not clear how to keep a currency's value stable without some kind of central authority. It may not even be possible to do in a distributed fashion.
  • 0x445442 8y ago
• deleted 8y ago
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• aaavl2821 8y ago
  Historically a big purpose of central banks or at least a rich institution was to be a buyer of last resort and prop up the economy in times of panic. Doesn't always have to be a central bank, but needs to be an institution big enough and independent enough to save markets. A decentralized system would almost by definition not have this, and probably result in disaster if there was a panic. Don't have an exhaustive list of financial panics offhand, but for ex: Panic of 1837 was thought to be as bad as it was in part bc central banks weren't strong enough to step in American economy recovered from Great Depression in part due to increased govt spending in ww2 Panic of 1907: Rockefeller and J.P. Morgan acted as financial backstop 2008 financial crisis response led largely by central banks China's stock market is managed very tightly by central bank
• known 8y ago
  We Central Banks to offset/dilute https://en.wikipedia.org/wiki/Information_asymmetry https://en.wikipedia.org/wiki/Information_asymmetry