4 ms·
Fractional reserve banking doesn't work without insurance. The practice of fractional reserve banking is actually encouraged by governments around the world du
by munk-a 5y ago
Fractional reserve banking doesn't work without insurance. The practice of fractional reserve banking is actually encouraged by governments around the world due to the generally acceptable amounts of risk and the increase in effective cash supply, these are advantages that are seen to outweigh the risks. The issue is that tether may be imposing these risks on the market without any coordination of either insurance or widespread liquidity benefit - they may just be doing this to increase their effective private market power.
In America's situation, FYI, that insurance is supplied in the form of a gigantic economic engine and lots of guns to get more money if needed - elsewhere in the world this risk will often times be subsidized by the IMF.
- mahogany 5y agoSo are you not refuting that the core mechanic looks the same with Tether? The difference is just that the fractional reserve banking system is protected by the government, with guns if necessary?
- munk-a 5y agoI wasn't actually addressing whether tether does or does not under reserve assets. I'm not particularly familiar with tether in general and the article isn't the easiest to follow when it comes to where specifically the money is and how secure those investments are. It'd be a poor practice to have all their backing cash invested into GME, but it'd also be a poor practice to have their cash in actual bills somewhere. Ideally Tether can maintain an oversupply of asset value in various sources that are stable enough to justify less than the oversupply they have.