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> I often wonder how money is stored. The Bank of England published a summary of how modern banks work. See https://www.bankofengland.co.uk/quarterly-bulletin

> I often wonder how money is stored. The Bank of England published a summary of how modern banks work. See https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m... > It can't be just a number on a computer in a bank, right? It can and it is, see the BOE paper. > So I guess USD needs to be recognized by the US somehow? This is a complicated question that will start a flamewar, but basically, any bank in the world can create dollars out of thin air given adequate collateral. Read about "Eurodollars".

ajross 5y ago
> This is a complicated question that will start a flamewar, but basically, any bank in the world can create dollars out of thin air given adequate collateral. Read about "Eurodollars". This is true, but it's actually sort of a specious point. What a eurodollar deposit "really" is, is just a short contract. Your European bank takes your exchange and promises to give you back dollars when you ask for them. That they may not have them right now is just a technical detail. But the value of the dollar is still set by what the market is willing to pay for it. The bank going "short USD" is a risk it takes, not an inflationary pressure per se. So... sure. Foreign banks can create dollars just like brokerages can "create stock shares"[1]. Except, they really can't. They're just playing accounting tricks. [1] Or, more relevantly perhaps, how one crypto exchange can create wrapped tokens representing foreign coins. This capability was part of the exploit chain that led to the DeFi hack last month.
- lokar 5y ago
  Exactly, they don't give you dollars, they give you a dollar denominated liability.
  - MatteoFrigo 5y ago
    Just to make sure we are speaking the same language: If I have $1 in a checking account in a US bank, do I have one dollar, or do I have a dollar-denominated asset of $1 face value, backed by a dollar-denominated liability of the bank?
    - ajross 5y ago
      Reserve requirements at US banks are regulated by the US government as one of many mechanisms used to control the money supply. So... yes, sure. It's complicated, but a dollar at a US bank is a "dollar", because that's what "dollar" means. The contention upthread was that foreign banks could do the same thing to print dollars. And, again, it's complicated. They sorta can, but only in the sense of placing a gargantuan short bet on the dollar. (A ton of short selling on a small security can push the price down for the same reason). So no one does that, because no bank wants to play that kind of game (or is allowed: all those large foreign banks are themselves regulated by their own national regimes).
      - count 5y ago
        Oh oh, next do the Depository Trust Company and how people don't actually own their stock shares of most public stocks either :)
    - lokar 5y ago
      If you walk into a US bank and deposit $1 cash, they now owe you $1. To what extent they must have ready cash, fed deposits, liquid assets, illiquid assets, etc to back that debt is the subject of bank regulation
bally0241 5y ago
It's amazing to watch people who have never really thought about this before realize the entire banking system is built upon a handful of centralized, permissioned databases which can pretty much be turned on/off at will for certain parties by the central banks. What is even more amazing is watching these same people (no necessarily you OP, but prevailing opinion on HN...) then go on an argue that a permission-less distributed ledger like Bitcoin is a completely unnecessary waste of resources.
- phphphphp 5y ago
  You describe money as if it’s just numbers being moved around: yes, the technology is just numbers moving around, but money is a social construct not a technology, the use of technology is a very small part of what makes money money.
  - wmwmwm 5y ago
    As someone who finds himself thinking “wtf is money” every decade or so, the most recent book I read on this was pretty good - Money: The Unauthorised Biography by Felix Martin. It’s firmly in the “social construct” camp and makes some good arguments (to my lay mind!). There’s some really interesting stuff about the Fei stones https://en.m.wikipedia.org/wiki/Rai_stones https://en.m.wikipedia.org/wiki/Rai_stones
- hprotagonist 5y ago
  > permission-less distributed ledger like Bitcoin is a completely unnecessary waste of resources. it certainly is when it immediately de facto centralizes! which is in the event what has happened
  - bally0241 5y ago
    I'm not sure how you can say it is de facto centralized. You may have had a decent argument as recently as last summer when most of the mining was done in China. However, we just watched them ban mining there completely, and the network carried on relatively unfazed. Seems pretty distributed to me.
particulars02 5y ago
This has to be, by many orders of magnitude, the most baller backdrop of any video ever.
willis936 5y ago
I'm interested in a risk assessment and hardware/software standard for acceptable error rate. How much redundancy is in use and at what layers?

ajross 5y ago

> This is a complicated question that will start a flamewar, but basically, any bank in the world can create dollars out of thin air given adequate collateral. Read about "Eurodollars". This is true, but it's actually sort of a specious point. What a eurodollar deposit "really" is, is just a short contract. Your European bank takes your exchange and promises to give you back dollars when you ask for them. That they may not have them right now is just a technical detail. But the value of the dollar is still set by what the market is willing to pay for it. The bank going "short USD" is a risk it takes, not an inflationary pressure per se. So... sure. Foreign banks can create dollars just like brokerages can "create stock shares"[1]. Except, they really can't. They're just playing accounting tricks. [1] Or, more relevantly perhaps, how one crypto exchange can create wrapped tokens representing foreign coins. This capability was part of the exploit chain that led to the DeFi hack last month.

lokar 5y ago
Exactly, they don't give you dollars, they give you a dollar denominated liability.
- MatteoFrigo 5y ago
  Just to make sure we are speaking the same language: If I have $1 in a checking account in a US bank, do I have one dollar, or do I have a dollar-denominated asset of $1 face value, backed by a dollar-denominated liability of the bank?
  - ajross 5y ago
    Reserve requirements at US banks are regulated by the US government as one of many mechanisms used to control the money supply. So... yes, sure. It's complicated, but a dollar at a US bank is a "dollar", because that's what "dollar" means. The contention upthread was that foreign banks could do the same thing to print dollars. And, again, it's complicated. They sorta can, but only in the sense of placing a gargantuan short bet on the dollar. (A ton of short selling on a small security can push the price down for the same reason). So no one does that, because no bank wants to play that kind of game (or is allowed: all those large foreign banks are themselves regulated by their own national regimes).
    - count 5y ago
      Oh oh, next do the Depository Trust Company and how people don't actually own their stock shares of most public stocks either :)
  - lokar 5y ago
    If you walk into a US bank and deposit $1 cash, they now owe you $1. To what extent they must have ready cash, fed deposits, liquid assets, illiquid assets, etc to back that debt is the subject of bank regulation

bally0241 5y ago

It's amazing to watch people who have never really thought about this before realize the entire banking system is built upon a handful of centralized, permissioned databases which can pretty much be turned on/off at will for certain parties by the central banks. What is even more amazing is watching these same people (no necessarily you OP, but prevailing opinion on HN...) then go on an argue that a permission-less distributed ledger like Bitcoin is a completely unnecessary waste of resources.

phphphphp 5y ago
You describe money as if it’s just numbers being moved around: yes, the technology is just numbers moving around, but money is a social construct not a technology, the use of technology is a very small part of what makes money money.
- wmwmwm 5y ago
  As someone who finds himself thinking “wtf is money” every decade or so, the most recent book I read on this was pretty good - Money: The Unauthorised Biography by Felix Martin. It’s firmly in the “social construct” camp and makes some good arguments (to my lay mind!). There’s some really interesting stuff about the Fei stones https://en.m.wikipedia.org/wiki/Rai_stones https://en.m.wikipedia.org/wiki/Rai_stones
hprotagonist 5y ago
> permission-less distributed ledger like Bitcoin is a completely unnecessary waste of resources. it certainly is when it immediately de facto centralizes! which is in the event what has happened
- bally0241 5y ago
  I'm not sure how you can say it is de facto centralized. You may have had a decent argument as recently as last summer when most of the mining was done in China. However, we just watched them ban mining there completely, and the network carried on relatively unfazed. Seems pretty distributed to me.

particulars02 5y ago

This has to be, by many orders of magnitude, the most baller backdrop of any video ever.

willis936 5y ago

I'm interested in a risk assessment and hardware/software standard for acceptable error rate. How much redundancy is in use and at what layers?