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> fractional-reserve-banking You are confusing this with something else. If there was no fractional-reserve-banking under the gold standard, then why did bank
by lkrubner 8y ago
> fractional-reserve-banking
You are confusing this with something else. If there was no fractional-reserve-banking under the gold standard, then why did bank panics happen? If the bank had $1 million loaned out, and also had $1 million of gold in its vaults, then why would anyone panic? Yet bank panics were common. And that's because the banks all engaged in fractional-reserve-banking -- if they had $1 million in gold in their vaults, they would make loans worth $5 million.
- ucaetano 8y agoBecause you literally can't loan $5M in physical gold if you only have $1M in physical gold in your vaults. You can't just make gold out of thin air. Same with a bitcoin. You can, however, issue gold-denominated notes in $5M even if you only have $1M in the bank. But you're not lending gold, you're lending paper currency.
- lkrubner 8y agoI can't tell if you are talking about real life, or if you are talking about a hypothetical scenario. You are aware that bank panics were common when the gold standard was in force? Banks routinely made $5 million in loans when they had $1 million of gold in their vaults?
- ucaetano 8y agoLoaning out a gold-backed currency isn't loaning out gold. You seem to be confusing "1 pound of gold" with "a piece of paper saying that bank X will trade this for 1 pound of gold". The two are not the same.