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The bank does hold a fraction of your deposits, as our banking in the US is fractional reserve banking. This has been the case for quite some time, and isn't re

The bank does hold a fraction of your deposits, as our banking in the US is fractional reserve banking. This has been the case for quite some time, and isn't really the same thing as digital currency, even if we transact digitally.

jwolfe 5y ago
From my understanding, they hold most of that in reserve accounts with the Federal Reserve. But yeah, someone at some point holds some cash. But of the total US money supply (in 2018), physical currency makes up about 11% of the total value[0]. [0] https://www.businessinsider.com/heres-how-much-us-currency-there-is-in-circulation-2018-4 https://www.businessinsider.com/heres-how-much-us-currency-t...
- reedjosh 5y ago
  And whenever this comes up, I just like to remind people that we went to a reserve requirement of 0% nearly a year ago with the start of COVID. https://medium.com/navigating-life/we-just-went-from-fractional-reserve-banking-to-zero-reserve-banking-and-its-a-pretty-big-deal-c501432e9be6 https://medium.com/navigating-life/we-just-went-from-fractio... Edit: Downvoted, and I'm guessing it's the source? This is legitimate fact though. Here's the fed's own announcement. > In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone...
  - tylerhou 5y ago
    Which is completely fine, because the Fed is willing to step in as the lender of last resort.
    - reedjosh 5y ago
      It may be fine for the faith in banking structures, but it's not that great it you like your dollars to hold value.
      - bun_at_work 5y ago
        This comment betrays your misunderstanding of the financial institutions and systems at play here. The Fed's goal is to maintain inflation at 2% for reasons more complicated than I'll discuss here. If you're interested here is a source you might like: > https://www.goodreads.com/book/show/30231791-the-end-of-alchemy https://www.goodreads.com/book/show/30231791-the-end-of-alch...
        reedjosh 5y ago
        I understand the goal and all of the justifications of Kaynsian economics. I don't have a misunderstanding of it, but a disagreement with it. See Bitcoin Standard podcast and or book for more on hard money and economics under it. https://saifedean.com/thebitcoinstandard/ https://saifedean.com/thebitcoinstandard/ And or the Mises Institute for the low down on Austrian economic viewpoints that answer many of the questions that Kaynsians can't. https://mises.org/what-austrian-economics https://mises.org/what-austrian-economics And on top of that the fed itself says we've already had 4.2% CPI inflation this year. https://www.bls.gov/cpi/latest-numbers.htm https://www.bls.gov/cpi/latest-numbers.htm But, that's trusting the stakeholders in the inflation game to be honest. If you remove the constant adjustments to the CPI you get a _much_ higher rate of inflation than governments will admit. http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
        lowkey 5y ago
        > The Fed's goal is to maintain inflation at 2% for reasons more complicated than I'll discuss here. It would be amazing if you could make the effort to explain the complicated reasons why the Fed's inflationary policy is a good thing. I have yet to hear a sound argument why sound money is worse for the people, than an inflationary currency. I can see how it would benefit the government to hide the true cost of taxation via inflation, but why does it ever benefit the individual to have their wealth diluted by the process of inflation, even if it is "only" by about 2% per year?
- bun_at_work 5y ago
  Right, because fractional reserves are set around 10% or so. edit: fraction reserve _requirements_ are set around 10% or so.
X6S1x6Okd1st 5y ago
That definition seems to differ from the definition I've commonly seen. How do you define a digital currency?
- bun_at_work 5y ago
  I don't have a strict definition handy, however it seems as though digital currencies would be those that are digitally based, whereas the dollar is a tangible currency first, even if it is fiat. A digital currency would be like crypto currency, or in-game currencies or something designed to be digital. The dollar is the federal reserve currency, and not intended to be digital. It doesn't make sense to call it digital currency, when in fact it's physical currency first, and we've developed digital tools to help us use it and move it around.
  - X6S1x6Okd1st 5y ago
    At this point the vast majority of USD is digitally represented only.
    - bun_at_work 5y ago
      I don't disagree, but it doesn't change that USD is not a digital currency.
kqr 5y ago
Well, you make it sound like there's a limited number of dollar notes and the bank will refuse your deposit/loan if they don't have enough notes lying around to make the fractional requirements. In reality, they will accept your deposit/loan (as long as it makes business sense) with no regard for how many notes they have lying around. If that puts them over the edge of the fractional requirements, they'll just go to the Fed/Treasury, who will swing their wand and write in additional (digital) reserves for the bank. It is mainly all digital at this point.
- reedjosh 5y ago
  > they'll just go to the Fed/Treasury, who will swing their wand and write in additional (digital) reserves for the bank. Pretty sure that's true for larger institutions and lending between themselves, but not for your everyday accounts. They must go to fed member banks themselves to ask for the loans.
- bun_at_work 5y ago
  This simply isn't how the financial system works. The bank will only loan out amounts based on what they hold in reserve. Asking the Fed/Treasury to "swing their wand around" isn't really close to what happens. Also, the Federal Reserve and the Treasury are different entities. They don't just "print money" for banks arbitrarily.
  - kqr 5y ago
    Printing money for banks arbitrarily is exactly what they do -- what they have to do, if they want to have any chance at meeting their target overnight rate. (Which they are.) Demand for money comes from the market and is not very flexible, and certainly not under anyone's control. Lenders will meet the demand for money at ever increasing prices (i.e. higher overnight rates) unless money gets printed arbitrarily.
  - spiralx 5y ago
    Banks literally create money by lending, here's a good overview from the Bank of England: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
scatters 5y ago
The US does not have reserve requirements; it has capital requirements. The fractional-reserve model is not a realistic description of banking in modern developed economies.

jwolfe 5y ago

From my understanding, they hold most of that in reserve accounts with the Federal Reserve. But yeah, someone at some point holds some cash. But of the total US money supply (in 2018), physical currency makes up about 11% of the total value[0]. [0] https://www.businessinsider.com/heres-how-much-us-currency-there-is-in-circulation-2018-4 https://www.businessinsider.com/heres-how-much-us-currency-t...

reedjosh 5y ago
And whenever this comes up, I just like to remind people that we went to a reserve requirement of 0% nearly a year ago with the start of COVID. https://medium.com/navigating-life/we-just-went-from-fractional-reserve-banking-to-zero-reserve-banking-and-its-a-pretty-big-deal-c501432e9be6 https://medium.com/navigating-life/we-just-went-from-fractio... Edit: Downvoted, and I'm guessing it's the source? This is legitimate fact though. Here's the fed's own announcement. > In light of the shift to an ample reserves regime, the Board has reduced reserve requirement ratios to zero percent effective on March 26, the beginning of the next reserve maintenance period. This action eliminates reserve requirements for thousands of depository institutions and will help to support lending to households and businesses. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200315b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone...
- tylerhou 5y ago
  Which is completely fine, because the Fed is willing to step in as the lender of last resort.
  - reedjosh 5y ago
    It may be fine for the faith in banking structures, but it's not that great it you like your dollars to hold value.
    - bun_at_work 5y ago
      This comment betrays your misunderstanding of the financial institutions and systems at play here. The Fed's goal is to maintain inflation at 2% for reasons more complicated than I'll discuss here. If you're interested here is a source you might like: > https://www.goodreads.com/book/show/30231791-the-end-of-alchemy https://www.goodreads.com/book/show/30231791-the-end-of-alch...
      - reedjosh 5y ago
        I understand the goal and all of the justifications of Kaynsian economics. I don't have a misunderstanding of it, but a disagreement with it. See Bitcoin Standard podcast and or book for more on hard money and economics under it. https://saifedean.com/thebitcoinstandard/ https://saifedean.com/thebitcoinstandard/ And or the Mises Institute for the low down on Austrian economic viewpoints that answer many of the questions that Kaynsians can't. https://mises.org/what-austrian-economics https://mises.org/what-austrian-economics And on top of that the fed itself says we've already had 4.2% CPI inflation this year. https://www.bls.gov/cpi/latest-numbers.htm https://www.bls.gov/cpi/latest-numbers.htm But, that's trusting the stakeholders in the inflation game to be honest. If you remove the constant adjustments to the CPI you get a _much_ higher rate of inflation than governments will admit. http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
      - lowkey 5y ago
        > The Fed's goal is to maintain inflation at 2% for reasons more complicated than I'll discuss here. It would be amazing if you could make the effort to explain the complicated reasons why the Fed's inflationary policy is a good thing. I have yet to hear a sound argument why sound money is worse for the people, than an inflationary currency. I can see how it would benefit the government to hide the true cost of taxation via inflation, but why does it ever benefit the individual to have their wealth diluted by the process of inflation, even if it is "only" by about 2% per year?
bun_at_work 5y ago
Right, because fractional reserves are set around 10% or so. edit: fraction reserve _requirements_ are set around 10% or so.

X6S1x6Okd1st 5y ago

That definition seems to differ from the definition I've commonly seen. How do you define a digital currency?

bun_at_work 5y ago
I don't have a strict definition handy, however it seems as though digital currencies would be those that are digitally based, whereas the dollar is a tangible currency first, even if it is fiat. A digital currency would be like crypto currency, or in-game currencies or something designed to be digital. The dollar is the federal reserve currency, and not intended to be digital. It doesn't make sense to call it digital currency, when in fact it's physical currency first, and we've developed digital tools to help us use it and move it around.
- X6S1x6Okd1st 5y ago
  At this point the vast majority of USD is digitally represented only.
  - bun_at_work 5y ago
    I don't disagree, but it doesn't change that USD is not a digital currency.

kqr 5y ago

Well, you make it sound like there's a limited number of dollar notes and the bank will refuse your deposit/loan if they don't have enough notes lying around to make the fractional requirements. In reality, they will accept your deposit/loan (as long as it makes business sense) with no regard for how many notes they have lying around. If that puts them over the edge of the fractional requirements, they'll just go to the Fed/Treasury, who will swing their wand and write in additional (digital) reserves for the bank. It is mainly all digital at this point.

reedjosh 5y ago
> they'll just go to the Fed/Treasury, who will swing their wand and write in additional (digital) reserves for the bank. Pretty sure that's true for larger institutions and lending between themselves, but not for your everyday accounts. They must go to fed member banks themselves to ask for the loans.
bun_at_work 5y ago
This simply isn't how the financial system works. The bank will only loan out amounts based on what they hold in reserve. Asking the Fed/Treasury to "swing their wand around" isn't really close to what happens. Also, the Federal Reserve and the Treasury are different entities. They don't just "print money" for banks arbitrarily.
- kqr 5y ago
  Printing money for banks arbitrarily is exactly what they do -- what they have to do, if they want to have any chance at meeting their target overnight rate. (Which they are.) Demand for money comes from the market and is not very flexible, and certainly not under anyone's control. Lenders will meet the demand for money at ever increasing prices (i.e. higher overnight rates) unless money gets printed arbitrarily.
- spiralx 5y ago
  Banks literally create money by lending, here's a good overview from the Bank of England: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

scatters 5y ago

The US does not have reserve requirements; it has capital requirements. The fractional-reserve model is not a realistic description of banking in modern developed economies.