7 ms·

The original 10$ aren't "gone", they're held in reserve in the form of bank deposits and government bonds. If you hold Libra, you supposedly have a claim agains

The original 10$ aren't "gone", they're held in reserve in the form of bank deposits and government bonds. If you hold Libra, you supposedly have a claim against those. This is unlike a fractional-reserve bank, which can turn those most of those $10 into loans of any sort and still pretend it's cash that's available at any time.

devoply 7y ago
Not just one loan, like 10 loans.
- deleted 7y ago
  [deleted]
benj111 7y ago
You know a bond is a loan? Why is a Libra loan to the government different to a fractional reserve loan of any sort?
- wcoenen 7y ago
  Short term US government bonds are extremely liquid and low risk; unlike other loans they are easy to convert into dollars. Presumably any other government bonds in the libra reserve (e.g. german bunds for euro?) would be selected to have the same property.
- gridlockd 7y ago
  A government bond issued in the countries own currency has no risk of default and is highly liquid. An ordinary loan such as a mortgage has poor liquidity and a high risk of default in case of turmoil.
  - benj111 7y ago
    "A government bond issued in the countries own currency has no risk of default" That is very far from correct. And I still don't think the risk differential is enough to make them 2 different things.
    - gridlockd 7y ago
      > That is very far from correct. Fair enough, that was poorly phrased. For practical purposes, buyers of such bonds operate under the assumption that the country won't default on its debt, because it can always service it nominally by creating the money. Of course that has a risk of depreciation, but so does holding the currency itself. > And I still don't think the risk differential is enough to make them 2 different things. You don't think a junk bond, a mortgage and a government bond are different things? I never said that a government bond is not a loan. Of course it is a loan, but in terms of risk and (more importantly) liquidity these are all very different. What asset has lower risk than a short-term government bond? If you know, tell the banks in Europe that are currently paying negative interest on German bonds all the way up to 10 years.
      - benj111 7y ago
        "because it can always service it nominally by creating the money" The Eurozone would offer a counter example. I suppose if a nation issued enough inflation linked bonds it could also get itself into trouble that way. In general though you're right, inflation is the big risk. "You don't think a junk bond, a mortgage and a government bond are different things? " That's actually the example I was thinking of. I think they're both bonds. To take it back to your original comment, I don't think something stops being fractional reserve banking just because the money is put into low risk loans, its the same overall business model, paying out less in interest then you get in. "What asset has lower risk than a short-term government bond?" Good question, depends on the risk though. Theres a very high risk that you'll lose out to inflation in the long term, so there's a argument that stocks are safer in the long term. Bank deposits in my country are govt backed up to a certain amount and pay slightly more, so that's as safe as, and has a better chance of beating inflation.
        gridlockd 7y ago
        > The Eurozone would offer a counter example. The Eurozone is special case, because the Euro is not any countries "own" currency. I'm not an expert on the modalities, but as far as I'm aware Euro member states can print their own money, but that would of course cause conflict with other members. In any event, the ECB did avoid defaults of its member states. > I don't think something stops being fractional reserve banking just because the money is put into low risk loans, its the same overall business model, paying out less in interest then you get in. Fair enough, we're having an argument over semantics. To be precise, what Facebook is doing is neither banking nor fractional reserve banking and I'm really just looking to draw a parallel here. As far as actual banks and their reserve requirements are concerned, domestic bonds may well be "as good as cash", but it depends on the particular monetary policy. Whether that's good policy is debatable of course. > Good question, depends on the risk though. Theres a very high risk that you'll lose out to inflation in the long term, so there's a argument that stocks are safer in the long term. Bank deposits in my country are govt backed up to a certain amount and pay slightly more, so that's as safe as, and has a better chance of beating inflation. It's not a "good question", it's a rhetorical question. The answer is none, especially not stock. Bank deposits don't count, as they're limited. Imagine you're a bank yourself and you need minimize your risk exposure.

devoply 7y ago

Not just one loan, like 10 loans.

deleted 7y ago
[deleted]

benj111 7y ago

You know a bond is a loan? Why is a Libra loan to the government different to a fractional reserve loan of any sort?

wcoenen 7y ago
Short term US government bonds are extremely liquid and low risk; unlike other loans they are easy to convert into dollars. Presumably any other government bonds in the libra reserve (e.g. german bunds for euro?) would be selected to have the same property.
gridlockd 7y ago
A government bond issued in the countries own currency has no risk of default and is highly liquid. An ordinary loan such as a mortgage has poor liquidity and a high risk of default in case of turmoil.
- benj111 7y ago
  "A government bond issued in the countries own currency has no risk of default" That is very far from correct. And I still don't think the risk differential is enough to make them 2 different things.
  - gridlockd 7y ago
    > That is very far from correct. Fair enough, that was poorly phrased. For practical purposes, buyers of such bonds operate under the assumption that the country won't default on its debt, because it can always service it nominally by creating the money. Of course that has a risk of depreciation, but so does holding the currency itself. > And I still don't think the risk differential is enough to make them 2 different things. You don't think a junk bond, a mortgage and a government bond are different things? I never said that a government bond is not a loan. Of course it is a loan, but in terms of risk and (more importantly) liquidity these are all very different. What asset has lower risk than a short-term government bond? If you know, tell the banks in Europe that are currently paying negative interest on German bonds all the way up to 10 years.
    - benj111 7y ago
      "because it can always service it nominally by creating the money" The Eurozone would offer a counter example. I suppose if a nation issued enough inflation linked bonds it could also get itself into trouble that way. In general though you're right, inflation is the big risk. "You don't think a junk bond, a mortgage and a government bond are different things? " That's actually the example I was thinking of. I think they're both bonds. To take it back to your original comment, I don't think something stops being fractional reserve banking just because the money is put into low risk loans, its the same overall business model, paying out less in interest then you get in. "What asset has lower risk than a short-term government bond?" Good question, depends on the risk though. Theres a very high risk that you'll lose out to inflation in the long term, so there's a argument that stocks are safer in the long term. Bank deposits in my country are govt backed up to a certain amount and pay slightly more, so that's as safe as, and has a better chance of beating inflation.
      - gridlockd 7y ago
        > The Eurozone would offer a counter example. The Eurozone is special case, because the Euro is not any countries "own" currency. I'm not an expert on the modalities, but as far as I'm aware Euro member states can print their own money, but that would of course cause conflict with other members. In any event, the ECB did avoid defaults of its member states. > I don't think something stops being fractional reserve banking just because the money is put into low risk loans, its the same overall business model, paying out less in interest then you get in. Fair enough, we're having an argument over semantics. To be precise, what Facebook is doing is neither banking nor fractional reserve banking and I'm really just looking to draw a parallel here. As far as actual banks and their reserve requirements are concerned, domestic bonds may well be "as good as cash", but it depends on the particular monetary policy. Whether that's good policy is debatable of course. > Good question, depends on the risk though. Theres a very high risk that you'll lose out to inflation in the long term, so there's a argument that stocks are safer in the long term. Bank deposits in my country are govt backed up to a certain amount and pay slightly more, so that's as safe as, and has a better chance of beating inflation. It's not a "good question", it's a rhetorical question. The answer is none, especially not stock. Bank deposits don't count, as they're limited. Imagine you're a bank yourself and you need minimize your risk exposure.