4 ms·

I think the point they're making is that you cannot literally do fractional reserve banking with gold or bitcoins, because there is a physically or technically

by verall 8y ago

I think the point they're making is that you cannot literally do fractional reserve banking with gold or bitcoins, because there is a physically or technically limited amount of them. In your example, they can fractional reserve with letters of credit and trust. At no point can a bank actually loan out more physical gold then it had in its possession.

ucaetano 8y ago
Exactly. FRB is essentially a form of "double spending", but under certain conditions to maintain stability. Bitcoin doesn't allow double spending. Neither does gold.
- deleted 8y ago
  [deleted]
- jpmattia 8y ago
  > FRB is essentially a form of "double spending" This is nonsense. Loaning money that you own is not "double spending".
andrewla 8y ago
I'm not sure what "literally [doing] fractional reserve banking" means. Can you give me an alternative definition to the one I gave above? Fractional reserve banking means you accept deposits, and you make loans from those deposits, and the difference between the amount you've lent out and the amount you have in deposit is called the "reserve". If you try to maintain your reserve as a "fraction" of your deposits, you're doing "fractional" "reserve" banking. What's the "literal" aspect? You can't spend dollars that you have in the bank, not in the sense of handing someone cash. You can do money transfers to other accounts or other banks, but when you get down to how a money transfer happens (i.e. deposits with a central bank or correspondence accounts between institutions) there's no reason that you can't do that with any substance or commodity. There's no double spend involved, because you don't have specific Bitcoins on deposit. The Bitcoins you've deposited are long gone; munged into some central wallet and lent out to depositors, with only a fraction held by the bank. When you ask to withdraw, they take that fraction and give you the amount of your withdrawal out of it, and reduce the paper balance of your account.

by verall 8y ago

ucaetano 8y ago

Exactly. FRB is essentially a form of "double spending", but under certain conditions to maintain stability. Bitcoin doesn't allow double spending. Neither does gold.

deleted 8y ago
[deleted]
jpmattia 8y ago
> FRB is essentially a form of "double spending" This is nonsense. Loaning money that you own is not "double spending".

andrewla 8y ago

I'm not sure what "literally [doing] fractional reserve banking" means. Can you give me an alternative definition to the one I gave above? Fractional reserve banking means you accept deposits, and you make loans from those deposits, and the difference between the amount you've lent out and the amount you have in deposit is called the "reserve". If you try to maintain your reserve as a "fraction" of your deposits, you're doing "fractional" "reserve" banking. What's the "literal" aspect? You can't spend dollars that you have in the bank, not in the sense of handing someone cash. You can do money transfers to other accounts or other banks, but when you get down to how a money transfer happens (i.e. deposits with a central bank or correspondence accounts between institutions) there's no reason that you can't do that with any substance or commodity. There's no double spend involved, because you don't have specific Bitcoins on deposit. The Bitcoins you've deposited are long gone; munged into some central wallet and lent out to depositors, with only a fraction held by the bank. When you ask to withdraw, they take that fraction and give you the amount of your withdrawal out of it, and reduce the paper balance of your account.