17 ms·

Central Banks and Disintermediation

26 points by jbredeche 6y ago

devops000 6y ago
The problem is that this app could only be built by the government, but they have interests in all these intermediaries. Building it from bottom up it's difficult because it means a private company who deals directly with government, and it manages all they money.
te_chris 6y ago
*in the USA
gremlinsinc 6y ago
I feel like we're getting to this one way or another. Either via local govts like the U.S. rolling this out, or through crypto-currency, if they solve adoption, ease of use, inflation, identity, and sybil attacks-BIG IF. It'd be nice if you could for instance use notaries to tie your SSN to a coin wallet, then have a way to regain lost keys/passwords, and if they had some fraud protection (ability to rollback transactions without fees), or insurance at the least. The government I think has too many special interests, but syndicalists/unionists working in tandem across country-lines could create a global currency without govt control. I've thought a lot about this, researching different technologies on bitcoin. I'm no expert in crypto by far, but what I envision would be hard - with current chains being built as far as I can tell. Maybe in 5-10 years though.
- loceng 6y ago
  Adoption of anything is "easy," and not necessary through financial incentive that Bitcoin et al are inherently structured with, via government policy requiring adoption.
mrmikardo 6y ago
I think this article misses a valuable point: because they lend more than they keep in reserve, banks create money or credit, and thus expand the available money supply. Removing banks, and giving all this power to the central government, amounts (in my view, at least) to a form of central planning. There's a good talk about this, here: https://www.youtube.com/watch?v=IzE038REw2k https://www.youtube.com/watch?v=IzE038REw2k The author of this article seems to espouse the "financial intermediation" view of banking. But, as Werner notes, this theory has been rejected (on empirical evidence; although, I haven't read the paper he cites in his talk).
- vladimirralev 6y ago
  I think a key point here is "productive lending". You still need banks to have vested interest in loaning out money that they think will be paid back. Thus banks need to verify the credit-worthiness of the borrower, the collateral and consider the economic outlook. If you remove the banks and the government lends indiscriminately or with an agenda with no market interest, that's instantly a broken system for malinvestment and corruption.
  - mrmikardo 6y ago
    I agree. And the more centralised the banking system is, the weirder the incentives become / banks are somewhat decoupled from the incentive to lend to credit-worthy / promising businesses (like here in the UK).
    - mr_toad 6y ago
      I’m not sure what you mean by that. It seems obvious that’s banks have become increasingly risk adverse in the last 12 years or so, but I’m not sure what that has to do with centralisation.
  - 2Gkashmiri 6y ago
    funny you said "the government lends indiscriminately or with an agenda with no market interest" https://indianexpress.com/article/cities/delhi/centre-launches-micro-credit-scheme-to-provide-loans-to-street-vendors-6437617/ https://indianexpress.com/article/cities/delhi/centre-launch... this one is only "micro credit" but its pretty "indiscriminate" in a sense that the poorest of roadside street vendors/hawkers who "do not" have a credit score even are getting a loan. https://www.financialexpress.com/industry/banking-finance/psu-banks-come-to-rescue-before-govts-economic-package-sbi-indian-bank-others-offer-quick-credit/1909852/ https://www.financialexpress.com/industry/banking-finance/ps... this one, everyone, like every business owner using a credit line or similar products from banks were given additional 20%, no checks, no nothing. take it. while the second one is in somewhat organized sector because those are already bank customers, the first article, these people will have a lot of default because people see this as free money, not a "loan" and guess who will bear the expense. taxpayers.
solresol 6y ago
The way it works where I live is that if the tax office has to refund you some money (or the government wants to give you stimulus money, or whatever) is that by default it gets deposited to the bank account that was last used to pay any tax that was owed. There are always going to be oddities (e.g. a refund needs to be given to a person who has never paid tax, or you have changed bank accounts since then), but the vast majority of the time this will be the right account to send it to, and it's OK to have manual intervention to handle the rest. I'm not sure I understand why the USA can't do this, to solve the first problem listed (paying people directly). I'm not sure it requires government intervention to solve the other problems (instant payments from one person to another are common outside the USA, for example). What other advantages does SSN-as-bank-account have?
- 2Gkashmiri 6y ago
  yeah. in india its the similar thing. if talking about income tax, you have to get your bank account "prevalidated" meaning it has your tax id and your mobile number linked. also, your national identity card needs to be linked to your income tax account as well as that bank account. once you have that, only then the refund is processed. i know people who have had issues with their name spelling and refunds were stuck for months.
- Geee 6y ago
  Yup, I think everywhere except USA bank accounts are like email addresses. Government just needs to know your bank account number to pay stimulus. Taxes are paid to the government bank account. In Europe it has been this way since 80's. This solves the practical issue of moving money, I don't know about the other points. So called "wire" transfers are possible, but it's not used because it's scary or something?
- bradfa 6y ago
  I live in the US. I've mailed, through the US Post Office, my federal tax forms for the past few years as I don't pay for software to file my taxes. I have always gotten my tax refunds or other stimulus money directly deposited into my bank account by the IRS without any issues, including the past 2 stimulus payments. I believe every time the government is using ACH transfers to do this. Do most people in the US not do this when they file their taxes? Do businesses not have the ability to do this like people do? I mean, I know a lot of people in the US don't have bank accounts, so the only way for the government to send them money is via a check in the mail. This should (hopefully) be the exception and not the standard procedure.
timdaub 6y ago
Is it just me or does a16z look like a spam website to others too?
- rzodkiew 6y ago
  If it looks like a duck, and quacks like a duck...
alexmingoia 6y ago
It’s true, we could let consumers open accounts at the Federal Reserve and turn it into a retail bank. But that doesn’t benefit the average American, since checking is already free. And for retail loans, interest wouldn’t be cheaper if the Fed gave bank loans, because interest on bank loans is based on rates of default and a bank’s lending history. It’s not just some rent seeking fee on top of the federal funds rate. Turning the Fed into the only retail bank would reduce options for lending and the availability of credit.
- anewaccount2021 6y ago
  there is a benefit for the masses - Fed stimulus delivered instantly. with Fed digital currency, there will be no waiting for a stimulus deposit.
  - alexmingoia 6y ago
    That doesn’t require bank accounts at the Fed.
Traster 6y ago
>Before the internet, consumers who wanted to buy an airplane ticket would talk to a travel agent, who would type into a “green screen” terminal, which would “talk” to a mainframe computer, which would procure said airplane ticket. Sorry but what? Before the internet you went to a travel agent. Now you go to... expedia (a travel agent). The only difference between then and now is your human travel agent has been replaced by an algorithm designed to efficiently fleece you. This isn't disintermediation. There is intermediation of 500 silicon valley engineers between you and your flight instead of 1 local travel agent. Naturally this is A16Z's business model, go from a state where 100,000 travel agents are getting $50,000 a year for sales and move to a state where their start up is making $5Bn a year capturing that same value. What's bizarre though, is A16Z trying to explain to you that actually that $5Bn they're trying to capture actually doesn't exist. Expedia isn't a middle man making money, no according to A16Z there's no longer a middle man. Pay no attention to the $20Bn market cap.
- SuoDuanDao 6y ago
  I think the basis for that pretense is that every digital intermediary can compete with every other digital intermediary, unlike a human intermediary who can only effectively compete with other human intermediaries in the same geographic area. This causes very different effects on pricing. It's probably premature to say that it will drive the profit margins of the intermediaries almost to zero, but that is one possible outcome.
  - eru 6y ago
    Margin is a bit of a nebulous concept. Computers can help bring down costs. Competition can help force companies to pass on those savings. (Though even in the absence of competition, there is some incentive to lower prices in order to increase volume. But it's much weaker. See eg https://en.wikipedia.org/wiki/Monopoly_profit https://en.wikipedia.org/wiki/Monopoly_profit)
- DSingularity 6y ago
  And here lies the humanitarian problem with “software eats the world”.
xiphias2 6y ago
I'm not sure what the whole article is about. Bitcoin is here and can scale to store hundreds of trillions of dollars of value. Instead of ,,time to build'' I would say it's time to save.
moresvbs 6y ago
"Every consumer will access his or her savings, loans, and investments via a mobile app." Translation: want to access your money? be careful of what you say or we'll deprive you of access to your money. We own and control "your" mobile access point, so wise up.
anewaccount2021 6y ago
the idea of a personal "Fed" account for citizens isnt new...basically everyone talking about central bank digital currencies is describing this the basic "innovation" is the ability to coerce the masses by threatening to destroy money if not spent in accordance with central planners....here's $5k, spend it by Friday or its gone
mjul 6y ago
The article is concerned with the USA and apparently this country is a laggard in introducing a linked bank account for government payments. For comparison, the Danish government - in no way a fast mover - introduced a similar scheme, “Nemkonto” (Easy account), by legislation in 2003.
riskneutral 6y ago
> if the recipient of money is the government, it makes no sense for that to be filtered through legacy financial institutions OP seems to be proposing a redesign of the US Treasuries market that amounts to eliminating the primary dealer system and replacing it with ... an "app"? It's not necessarily a bad idea, it's just completely devoid of any alternative proposal, let alone actual details. And as they say, the devil is in the details. I guess that's the norm in the VC world, float a rough sketch of a very vague idea that sounds lucrative and hope that someone comes to them with an idea that fills in an actual proposal and enough details for them to be willing to take a real bet on a real idea. It's a mix of PR and blue sky thinking, I suppose.

26 points by jbredeche 6y ago

The problem is that this app could only be built by the government, but they have interests in all these intermediaries. Building it from bottom up it's difficult because it means a private company who deals directly with government, and it manages all they money.

te_chris 6y ago

*in the USA

gremlinsinc 6y ago

I feel like we're getting to this one way or another. Either via local govts like the U.S. rolling this out, or through crypto-currency, if they solve adoption, ease of use, inflation, identity, and sybil attacks-BIG IF. It'd be nice if you could for instance use notaries to tie your SSN to a coin wallet, then have a way to regain lost keys/passwords, and if they had some fraud protection (ability to rollback transactions without fees), or insurance at the least. The government I think has too many special interests, but syndicalists/unionists working in tandem across country-lines could create a global currency without govt control. I've thought a lot about this, researching different technologies on bitcoin. I'm no expert in crypto by far, but what I envision would be hard - with current chains being built as far as I can tell. Maybe in 5-10 years though.

loceng 6y ago
Adoption of anything is "easy," and not necessary through financial incentive that Bitcoin et al are inherently structured with, via government policy requiring adoption.

mrmikardo 6y ago

I think this article misses a valuable point: because they lend more than they keep in reserve, banks create money or credit, and thus expand the available money supply. Removing banks, and giving all this power to the central government, amounts (in my view, at least) to a form of central planning. There's a good talk about this, here: https://www.youtube.com/watch?v=IzE038REw2k https://www.youtube.com/watch?v=IzE038REw2k The author of this article seems to espouse the "financial intermediation" view of banking. But, as Werner notes, this theory has been rejected (on empirical evidence; although, I haven't read the paper he cites in his talk).

vladimirralev 6y ago
I think a key point here is "productive lending". You still need banks to have vested interest in loaning out money that they think will be paid back. Thus banks need to verify the credit-worthiness of the borrower, the collateral and consider the economic outlook. If you remove the banks and the government lends indiscriminately or with an agenda with no market interest, that's instantly a broken system for malinvestment and corruption.
- mrmikardo 6y ago
  I agree. And the more centralised the banking system is, the weirder the incentives become / banks are somewhat decoupled from the incentive to lend to credit-worthy / promising businesses (like here in the UK).
  - mr_toad 6y ago
    I’m not sure what you mean by that. It seems obvious that’s banks have become increasingly risk adverse in the last 12 years or so, but I’m not sure what that has to do with centralisation.
- 2Gkashmiri 6y ago
  funny you said "the government lends indiscriminately or with an agenda with no market interest" https://indianexpress.com/article/cities/delhi/centre-launches-micro-credit-scheme-to-provide-loans-to-street-vendors-6437617/ https://indianexpress.com/article/cities/delhi/centre-launch... this one is only "micro credit" but its pretty "indiscriminate" in a sense that the poorest of roadside street vendors/hawkers who "do not" have a credit score even are getting a loan. https://www.financialexpress.com/industry/banking-finance/psu-banks-come-to-rescue-before-govts-economic-package-sbi-indian-bank-others-offer-quick-credit/1909852/ https://www.financialexpress.com/industry/banking-finance/ps... this one, everyone, like every business owner using a credit line or similar products from banks were given additional 20%, no checks, no nothing. take it. while the second one is in somewhat organized sector because those are already bank customers, the first article, these people will have a lot of default because people see this as free money, not a "loan" and guess who will bear the expense. taxpayers.

solresol 6y ago

The way it works where I live is that if the tax office has to refund you some money (or the government wants to give you stimulus money, or whatever) is that by default it gets deposited to the bank account that was last used to pay any tax that was owed. There are always going to be oddities (e.g. a refund needs to be given to a person who has never paid tax, or you have changed bank accounts since then), but the vast majority of the time this will be the right account to send it to, and it's OK to have manual intervention to handle the rest. I'm not sure I understand why the USA can't do this, to solve the first problem listed (paying people directly). I'm not sure it requires government intervention to solve the other problems (instant payments from one person to another are common outside the USA, for example). What other advantages does SSN-as-bank-account have?

2Gkashmiri 6y ago
yeah. in india its the similar thing. if talking about income tax, you have to get your bank account "prevalidated" meaning it has your tax id and your mobile number linked. also, your national identity card needs to be linked to your income tax account as well as that bank account. once you have that, only then the refund is processed. i know people who have had issues with their name spelling and refunds were stuck for months.
Geee 6y ago
Yup, I think everywhere except USA bank accounts are like email addresses. Government just needs to know your bank account number to pay stimulus. Taxes are paid to the government bank account. In Europe it has been this way since 80's. This solves the practical issue of moving money, I don't know about the other points. So called "wire" transfers are possible, but it's not used because it's scary or something?
bradfa 6y ago
I live in the US. I've mailed, through the US Post Office, my federal tax forms for the past few years as I don't pay for software to file my taxes. I have always gotten my tax refunds or other stimulus money directly deposited into my bank account by the IRS without any issues, including the past 2 stimulus payments. I believe every time the government is using ACH transfers to do this. Do most people in the US not do this when they file their taxes? Do businesses not have the ability to do this like people do? I mean, I know a lot of people in the US don't have bank accounts, so the only way for the government to send them money is via a check in the mail. This should (hopefully) be the exception and not the standard procedure.

timdaub 6y ago

Is it just me or does a16z look like a spam website to others too?

rzodkiew 6y ago
If it looks like a duck, and quacks like a duck...

alexmingoia 6y ago

It’s true, we could let consumers open accounts at the Federal Reserve and turn it into a retail bank. But that doesn’t benefit the average American, since checking is already free. And for retail loans, interest wouldn’t be cheaper if the Fed gave bank loans, because interest on bank loans is based on rates of default and a bank’s lending history. It’s not just some rent seeking fee on top of the federal funds rate. Turning the Fed into the only retail bank would reduce options for lending and the availability of credit.

anewaccount2021 6y ago
there is a benefit for the masses - Fed stimulus delivered instantly. with Fed digital currency, there will be no waiting for a stimulus deposit.
- alexmingoia 6y ago
  That doesn’t require bank accounts at the Fed.

Traster 6y ago

>Before the internet, consumers who wanted to buy an airplane ticket would talk to a travel agent, who would type into a “green screen” terminal, which would “talk” to a mainframe computer, which would procure said airplane ticket. Sorry but what? Before the internet you went to a travel agent. Now you go to... expedia (a travel agent). The only difference between then and now is your human travel agent has been replaced by an algorithm designed to efficiently fleece you. This isn't disintermediation. There is intermediation of 500 silicon valley engineers between you and your flight instead of 1 local travel agent. Naturally this is A16Z's business model, go from a state where 100,000 travel agents are getting $50,000 a year for sales and move to a state where their start up is making $5Bn a year capturing that same value. What's bizarre though, is A16Z trying to explain to you that actually that $5Bn they're trying to capture actually doesn't exist. Expedia isn't a middle man making money, no according to A16Z there's no longer a middle man. Pay no attention to the $20Bn market cap.

SuoDuanDao 6y ago
I think the basis for that pretense is that every digital intermediary can compete with every other digital intermediary, unlike a human intermediary who can only effectively compete with other human intermediaries in the same geographic area. This causes very different effects on pricing. It's probably premature to say that it will drive the profit margins of the intermediaries almost to zero, but that is one possible outcome.
- eru 6y ago
  Margin is a bit of a nebulous concept. Computers can help bring down costs. Competition can help force companies to pass on those savings. (Though even in the absence of competition, there is some incentive to lower prices in order to increase volume. But it's much weaker. See eg https://en.wikipedia.org/wiki/Monopoly_profit https://en.wikipedia.org/wiki/Monopoly_profit)
DSingularity 6y ago
And here lies the humanitarian problem with “software eats the world”.

xiphias2 6y ago

I'm not sure what the whole article is about. Bitcoin is here and can scale to store hundreds of trillions of dollars of value. Instead of ,,time to build'' I would say it's time to save.

moresvbs 6y ago

"Every consumer will access his or her savings, loans, and investments via a mobile app." Translation: want to access your money? be careful of what you say or we'll deprive you of access to your money. We own and control "your" mobile access point, so wise up.

anewaccount2021 6y ago

the idea of a personal "Fed" account for citizens isnt new...basically everyone talking about central bank digital currencies is describing this the basic "innovation" is the ability to coerce the masses by threatening to destroy money if not spent in accordance with central planners....here's $5k, spend it by Friday or its gone

mjul 6y ago

The article is concerned with the USA and apparently this country is a laggard in introducing a linked bank account for government payments. For comparison, the Danish government - in no way a fast mover - introduced a similar scheme, “Nemkonto” (Easy account), by legislation in 2003.

riskneutral 6y ago

> if the recipient of money is the government, it makes no sense for that to be filtered through legacy financial institutions OP seems to be proposing a redesign of the US Treasuries market that amounts to eliminating the primary dealer system and replacing it with ... an "app"? It's not necessarily a bad idea, it's just completely devoid of any alternative proposal, let alone actual details. And as they say, the devil is in the details. I guess that's the norm in the VC world, float a rough sketch of a very vague idea that sounds lucrative and hope that someone comes to them with an idea that fills in an actual proposal and enough details for them to be willing to take a real bet on a real idea. It's a mix of PR and blue sky thinking, I suppose.