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In a bitcoin system, fractional reserve banking flat out will NOT work so you can completely forget about all of macroeconomics done in the last 300 years. Ins
by narrator 16y ago
In a bitcoin system, fractional reserve banking flat out will NOT work so you can completely forget about all of macroeconomics done in the last 300 years.
Instead it works like an economy that is not merely a gold standard but an economy where gold tokens are actually traded physically and are the only currency that is permitted. An example of this would be the economy of the Byzantine empire which was very stable and lasted over 1000 years. It was constructed in such a way as a reaction in part to the relentless debasement of the western roman empire's currency, which many believed was a central cause of its decline.
- JoachimSchipper 16y agoFractional reserve banking works, up to a certain multiplier (you can loan out every bitcoin you take in; if you can find people willing to accept "certificates valid for 1 bitcoin", you can loan out as many as you want).
- narrator 16y agoCertificates valid for one bitcoin are not bitcoins though. There is no reason to keep your money with a bank for safekeeping as their is for physical gold which is how the whole fractional reserve system got started. The goldsmith would give you receipts valid for your gold so you could safekeep it with him. Also, there is no government to print up fiat to bail out the banking system, so when loans default investors lose their money permanently.