8 ms·

>I can 100% confirm that all money in the world is just literally numbers, and it is balanced by the different federal reserve systems around the world to ensur

>I can 100% confirm that all money in the world is just literally numbers, and it is balanced by the different federal reserve systems around the world to ensure no one can "create" money without notifying everyone. How does the system guarantee that nobody's creating money without notifying everyone? Furthermore, does the system guarantee that the central banks of each country are correctly adjusting their books in consequence? Is it all just a trust-based system, or are there additional controls?

lxgr 5y ago
> How does the system guarantee that nobody's creating money without notifying everyone? Through a series of regulations regarding minimum liquidity/capital [1] and/or reserve [2] requirements. > Furthermore, does the system guarantee that the central banks of each country are correctly adjusting their books in consequence? By requiring them to periodically report on their assets and liabilities, checking for compliance with [1] and [2], and monitoring their reserve accounts. [1] https://en.wikipedia.org/wiki/Basel_III https://en.wikipedia.org/wiki/Basel_III [2] https://en.wikipedia.org/wiki/Reserve_requirement https://en.wikipedia.org/wiki/Reserve_requirement
- anonporridge 5y ago
  So it's all trust based? We have to trust that all the governments of the world, who pinky promised to follow the rules, aren't secretly cheating internally and reporting false numbers to everyone else?
  - worik 5y ago
    Yes. Money means nothing without trust. I do not think we can have civilisation without trust
    - anonporridge 5y ago
      "The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust." -- Satoshi Nakamoto
      - burnte 5y ago
        All currency is fiat. No medium of exchange that isn't strictly bartering is of arbitrary value.
        deleted 5y ago
        [deleted]
        anonporridge 5y ago
        Fiat currency here is obviously being used to refer to currencies created by government decree. Plenty of other moneys come into existence emergently, most obviously gold and silver without any authority mandating their use. Money is an emergent property of human society, not a gift handed down by our divinely established kings. The idea that money can only exist by government decree is patently absurd.
        kasey_junk 5y ago
        Gold and Silver are not “money”. Money is almost by definition based on authority mandated value. It’s true that lots of money exists outside of government decree but equating any commodity to be money redefines the term.
        anonporridge 5y ago
        That's a dumb take. Money is whatever thing human society decides to collectively value in order to more easily trade goods and services across time and space. Money has been and continues to be many things, from government decreed currencies, to gold and silver, to cigarettes in prisons, to sacks of salt paid to Roman soldiers (etymology of 'salary'), to the colloquial "I owe you one". Money is just debt and favors and can take an infinite number of forms depending on the environment and needs of the people using it to more efficiently collaborate.
  - mvkel 5y ago
    Yep! This is the fundamental "disruption" blockchain tech introduced. It doesn't require trust.
    - MereInterest 5y ago
      Any time a friend or relatives asks me to explain what cryptocurrency is, the trust aspect must be front and center, axiomatic to the entire ecosystem. There is not a single thing in the implementation that makes sense without first assuming a lack of trust amongst every single party. This is also why cryptocurrencies can never be made efficient, and will be a blight for as long as they exist. They are the logical extreme of the inefficiencies imposed by a low-trust society[0]. [0] https://en.wikipedia.org/wiki/High_trust_and_low_trust_societies https://en.wikipedia.org/wiki/High_trust_and_low_trust_socie...
      - anonymoushn 5y ago
        many PoS distributed slowish databases are currently deployed and process comparable transaction volume to credit card networks while emitting less carbon.
        zrail 5y ago
        > process comparable transaction volume to credit card networks Please cite your sources. edit for people finding this later: Visa and MasterCard do on the order of one billion transactions per day combined. As far as I can tell, Ethereum (proof of work as of today) does about a million per day and Avalance (one of the top 3 proof of stake networks according to Wikipedia) does about a million per day. That's literally one thousand times fewer transactions than the top two card networks. Three orders of magnitude.
        anonymoushn 5y ago
        Visa's fact sheet[0] says that they processed about 6500 transactions per second on average for a recent 12-month period. A Solana dashboard[1] says that Solana processed about 2700 transactions per second on average for a recent period of a few hours. If we would like to pick nits, we could say that the Visa transactions are not comparable to the Solana transactions because Solana transactions let users run complex programs that Visa does not, or that Solana transactions are not comparable to Visa transactions because nobody accepts SPL USDC and everyone pays out the nose to accept Visa, or that 2700 is a lot less than 6500, or that the 6500 number is misleading because the load should have peaks, and do we really know how much peak load Solana can handle, or that only about 1/3 of the Solana transactions are actual useful stuff for users and the rest are consensus messages. But my point is that these things are only "too slow compared to Visa" by a reasonably small factor now, like 6500 vs 900. Thanks. 0: https://usa.visa.com/dam/VCOM/global/about-visa/documents/aboutvisafactsheet.pdf https://usa.visa.com/dam/VCOM/global/about-visa/documents/ab... 1: https://solanabeach.io/ https://solanabeach.io/
  - temp12192021 5y ago
    Pretty much all human interaction is trust based.
    - anonporridge 5y ago
      Except the scientific process, which focuses on working as hard as you can to prove the other guy's work is wrong. Only if you can't do that do you start to trust and build off it. This scientific process of embedded mutual distrust is one of the most successful, generative, and important institutions humanity has ever created.
      - temp12192021 5y ago
        With unlimited resources, sure. But most scientists trust the peer review process and base their work on their own ideas and the ideas/results they read in journals. In short, scientists trust other scientists.
        anonporridge 5y ago
        Sure, trust is a shortcut we use to not do hard work, and free our time to do more useful things that constantly check on each other. That's fine. But it is critically important that we can periodically check in and verify that our trust is still well placed, and not have systems that can allow someone to massively profit from violating people's trust. The stronger those foundations and verifications of trust are, the better off we all are as a society.
        temp12192021 5y ago
        No, it's absolutely absurd that you expect every scientist to independently (and recursively) verify every result their work is based on.
        anonporridge 5y ago
        Why are you putting words in my mouth? I never suggested that every scientist independently and recursively verify every piece of previous work. Work and verification of work builds on each other. And every once in a while, we have a major milestone that verifies that much of the work that went into accomplishing the milestone (such as the moon landing) is generally correct. That's how we teach science to people. It's not just "here's the math and the science we know and it's totally right, just trust us bro". We say "here's the math and science we think is right, now let's do experiments along the way to periodically verify that the things we're teaching you actually generate real predictions that match reality". Science is all about being suspicious and verifying. Many (if not all) of the greatest scientific discoveries came from people questioning the established "truth".
  - pgwhalen 5y ago
    Yes, everything meaningful in society is trust based. I really hope crypto maximalists have made it this deep into the thread.
    - anonporridge 5y ago
      You're responding to a bitcoin maximalist my friend ;)
    - baby 5y ago
      Not sure what you mean, but I think that’s why crypto is so interesting: you have this public ledger that is auditable and where safety is maintained by consensus.
  - lmohseni 5y ago
    Here’s the thing though: any one who works with code knows that you cannot trust code. Code is as tricky and ambiguous as the humans who write it.
  - sealthedeal 5y ago
    Yes, it’s all trust based. I.e. if some random bank in Iowa decides to just create $10,000,000 out of thin air, the Fed will eventually find out and then they would lose banking license, lots of penalties. Same goes for countries. If a countries fed just creates new money out of no where and acts as if it’s always existed they risk everything. I.e. losing access to the global banking network, insane currency fluctuations, use your imagination. The premise is the same though. Our entire financial system as it stands today is based off of trust with auditing oversight and harsh penalties for breaking that trust.
- adolph 5y ago
  It seems like the linked regulation is not yet implemented. Further, your response to a question about a guarantee is regulation and reports? How does anyone know the reports of another central bank are true? When a central bank fakes numbers, what are the consequences, if any, and who adjudicates them? Basel III was agreed upon by the members of the Basel Committee on Banking Supervision in November 2010, and was scheduled to be introduced from 2013 until 2015; however, implementation was extended repeatedly to 1 January 2022 and then again until 1 January 2023, in the wake of the Covid-19 pandemic.
  - lxgr 5y ago
    Good point – I should have linked to the general concept instead: https://en.wikipedia.org/wiki/Basel_Accords https://en.wikipedia.org/wiki/Basel_Accords > Further, your response to a question about a guarantee is regulation and reports? How does anyone know the reports of another central bank are true? When a central bank fakes numbers, what are the consequences, if any, and who adjudicates them? Money, especially fiat money, is a social construct. The conformance with and violation of it is therefore within the domains of law and politics. > How does anyone know the reports of another central bank are true? Monetary theory is not my expertise, but I'm curious how a central bank report can even be "false" (assuming it is issuing fiat currency and isn't falsely claiming to be backed by foreign reserves or commodities, for example).
    - chii 5y ago
      > how a central bank report can even be "false" they issued money to institutions or individuals, but pretended that they didn't in the reports, thus creating untraceable money without oversight.
      - remram 5y ago
        How do they "issue money" if they don't report that transaction? Do you mean cash?
JumpCrisscross 5y ago
> How does the system guarantee that nobody's creating money without notifying everyone? Simple answer is balanced books. Longer answer is public reporting and reconciliation. If a bank shows its Federal Reserve balance at X on its asset side and the Federal Reserve shows its bank balance at 0.9X on its liability side, that will raise issue on reconciliation. The system lazily evaluates, however, which makes it nimble but also corruptible--if that bank never tries to spend that money, it may not come to light until audit.
- civilized 5y ago
  So, the bank can't flip a few bits in its databases and go "actually I have a quadrillion dollars now" because other people know how much money that bank should have based on transactions it has made? Do I have that right? Seriously I have wondered about this for decades. I don't know why this would be obvious to anyone.
  - zrail 5y ago
    Ultimately it comes down to trust and verification layered on top of the explicit threat of banking license forfeiture.
  - JumpCrisscross 5y ago
    > other people know how much money that bank should have based on transactions it has made? Approximately. Everyone keeps a running total of their bilateral transactions. This summing and sharding reduces information. But it also decentralizes accountability in a robust way. Add occasional audits (which allow trusted persons to evaluate the transaction record), and some of those parties' books (in the aggregate) being public record, thereby permitting every party (including third parties) to compare their books to theirs, and you get a system which tends towards accuracy.
Suncho 5y ago
> How does the system guarantee that nobody's creating money without notifying everyone? This is a comment that's not related to SWIFT in particular. Every asset (including money) is generally someone else's liability. The money that we hold as an asset is the liability of a bank. Anyone can issue their own liabilities, but you can't create money that's a liability of someone else. For example, I can't go to my bank and tell them I have a million dollars more in my deposit account than I actually do. They're keeping track on their end. Similarly, a bank can't pretend that it has more reserve deposits at the Fed than it really does. The Fed keeps track of everybody's reserve accounts on their end. > Furthermore, does the system guarantee that the central banks of each country are correctly adjusting their books in consequence? This isn't an issue. The books of central banks don't need to adjust when other banks issue money (i.e deposits).
- dannyw 5y ago
  To be more specific, central banks are allowed to create money. Their liability is /dev/null. It's how they added trillions to their balance sheet during COVID.
  - endisneigh 5y ago
    Not really their liability is basically the present value of the future which is indeterminate, not null. If the future pain is greater than the present value, or billions printed, then they printed too much, otherwise it was worth it. You can’t really know for sure if it’s worth it now though.
    - baby 5y ago
      I think what he means is that they can literally credit an account with new money in their database and it would work.
      - endisneigh 5y ago
        Yes but my point is that the liability and asset paradigm described still will hold. It’s simply that the liabilities are held by people who aren’t born or are obsfucated to the point that people don’t realize they are holding them. Inflation is one example
yamrzou 5y ago
I read the other responses to your question, and I feel like they're all using complicated language and are still ambiguous. Can we have a simple "for dummies" answer that explains how does the system guarantee that nobody's creating money without notifying everyone in practice? Is there some kind of a public ledger? Do banks automatically broadcast their money creation operation to other banks?
- TheOnly92 5y ago
  Well the simple way to look at this is that usually when you transact with another bank, you're required to have an account at that bank. Just as a consumer can't magically change their balance, a bank simply can't magically increase their balance at other banks. To perform increased transactions, you have to send money to that bank.
baby 5y ago
The system can’t do that. As a matter of fact I know someone who works for a French bank, and they fucked up and created a bunch of money. They had to work overnight with a bunch of accountants going through the books to make sure they reverted everything. EDIT: apparently they use some old XML protocol, where twice a day a correspondant bank send them a list of accounts to debit or credit. They didn’t send something once, so my friend’s bank just replayed the previous settlement list.

lxgr 5y ago

> How does the system guarantee that nobody's creating money without notifying everyone? Through a series of regulations regarding minimum liquidity/capital [1] and/or reserve [2] requirements. > Furthermore, does the system guarantee that the central banks of each country are correctly adjusting their books in consequence? By requiring them to periodically report on their assets and liabilities, checking for compliance with [1] and [2], and monitoring their reserve accounts. [1] https://en.wikipedia.org/wiki/Basel_III https://en.wikipedia.org/wiki/Basel_III [2] https://en.wikipedia.org/wiki/Reserve_requirement https://en.wikipedia.org/wiki/Reserve_requirement

anonporridge 5y ago
So it's all trust based? We have to trust that all the governments of the world, who pinky promised to follow the rules, aren't secretly cheating internally and reporting false numbers to everyone else?
- worik 5y ago
  Yes. Money means nothing without trust. I do not think we can have civilisation without trust
  - anonporridge 5y ago
    "The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust." -- Satoshi Nakamoto
    - burnte 5y ago
      All currency is fiat. No medium of exchange that isn't strictly bartering is of arbitrary value.
      - deleted 5y ago
        [deleted]
      - anonporridge 5y ago
        Fiat currency here is obviously being used to refer to currencies created by government decree. Plenty of other moneys come into existence emergently, most obviously gold and silver without any authority mandating their use. Money is an emergent property of human society, not a gift handed down by our divinely established kings. The idea that money can only exist by government decree is patently absurd.
        kasey_junk 5y ago
        Gold and Silver are not “money”. Money is almost by definition based on authority mandated value. It’s true that lots of money exists outside of government decree but equating any commodity to be money redefines the term.
        anonporridge 5y ago
        That's a dumb take. Money is whatever thing human society decides to collectively value in order to more easily trade goods and services across time and space. Money has been and continues to be many things, from government decreed currencies, to gold and silver, to cigarettes in prisons, to sacks of salt paid to Roman soldiers (etymology of 'salary'), to the colloquial "I owe you one". Money is just debt and favors and can take an infinite number of forms depending on the environment and needs of the people using it to more efficiently collaborate.
- mvkel 5y ago
  Yep! This is the fundamental "disruption" blockchain tech introduced. It doesn't require trust.
  - MereInterest 5y ago
    Any time a friend or relatives asks me to explain what cryptocurrency is, the trust aspect must be front and center, axiomatic to the entire ecosystem. There is not a single thing in the implementation that makes sense without first assuming a lack of trust amongst every single party. This is also why cryptocurrencies can never be made efficient, and will be a blight for as long as they exist. They are the logical extreme of the inefficiencies imposed by a low-trust society[0]. [0] https://en.wikipedia.org/wiki/High_trust_and_low_trust_societies https://en.wikipedia.org/wiki/High_trust_and_low_trust_socie...
    - anonymoushn 5y ago
      many PoS distributed slowish databases are currently deployed and process comparable transaction volume to credit card networks while emitting less carbon.
      - zrail 5y ago
        > process comparable transaction volume to credit card networks Please cite your sources. edit for people finding this later: Visa and MasterCard do on the order of one billion transactions per day combined. As far as I can tell, Ethereum (proof of work as of today) does about a million per day and Avalance (one of the top 3 proof of stake networks according to Wikipedia) does about a million per day. That's literally one thousand times fewer transactions than the top two card networks. Three orders of magnitude.
        anonymoushn 5y ago
        Visa's fact sheet[0] says that they processed about 6500 transactions per second on average for a recent 12-month period. A Solana dashboard[1] says that Solana processed about 2700 transactions per second on average for a recent period of a few hours. If we would like to pick nits, we could say that the Visa transactions are not comparable to the Solana transactions because Solana transactions let users run complex programs that Visa does not, or that Solana transactions are not comparable to Visa transactions because nobody accepts SPL USDC and everyone pays out the nose to accept Visa, or that 2700 is a lot less than 6500, or that the 6500 number is misleading because the load should have peaks, and do we really know how much peak load Solana can handle, or that only about 1/3 of the Solana transactions are actual useful stuff for users and the rest are consensus messages. But my point is that these things are only "too slow compared to Visa" by a reasonably small factor now, like 6500 vs 900. Thanks. 0: https://usa.visa.com/dam/VCOM/global/about-visa/documents/aboutvisafactsheet.pdf https://usa.visa.com/dam/VCOM/global/about-visa/documents/ab... 1: https://solanabeach.io/ https://solanabeach.io/
- temp12192021 5y ago
  Pretty much all human interaction is trust based.
  - anonporridge 5y ago
    Except the scientific process, which focuses on working as hard as you can to prove the other guy's work is wrong. Only if you can't do that do you start to trust and build off it. This scientific process of embedded mutual distrust is one of the most successful, generative, and important institutions humanity has ever created.
    - temp12192021 5y ago
      With unlimited resources, sure. But most scientists trust the peer review process and base their work on their own ideas and the ideas/results they read in journals. In short, scientists trust other scientists.
      - anonporridge 5y ago
        Sure, trust is a shortcut we use to not do hard work, and free our time to do more useful things that constantly check on each other. That's fine. But it is critically important that we can periodically check in and verify that our trust is still well placed, and not have systems that can allow someone to massively profit from violating people's trust. The stronger those foundations and verifications of trust are, the better off we all are as a society.
        temp12192021 5y ago
        No, it's absolutely absurd that you expect every scientist to independently (and recursively) verify every result their work is based on.
        anonporridge 5y ago
        Why are you putting words in my mouth? I never suggested that every scientist independently and recursively verify every piece of previous work. Work and verification of work builds on each other. And every once in a while, we have a major milestone that verifies that much of the work that went into accomplishing the milestone (such as the moon landing) is generally correct. That's how we teach science to people. It's not just "here's the math and the science we know and it's totally right, just trust us bro". We say "here's the math and science we think is right, now let's do experiments along the way to periodically verify that the things we're teaching you actually generate real predictions that match reality". Science is all about being suspicious and verifying. Many (if not all) of the greatest scientific discoveries came from people questioning the established "truth".
- pgwhalen 5y ago
  Yes, everything meaningful in society is trust based. I really hope crypto maximalists have made it this deep into the thread.
  - anonporridge 5y ago
    You're responding to a bitcoin maximalist my friend ;)
  - baby 5y ago
    Not sure what you mean, but I think that’s why crypto is so interesting: you have this public ledger that is auditable and where safety is maintained by consensus.
- lmohseni 5y ago
  Here’s the thing though: any one who works with code knows that you cannot trust code. Code is as tricky and ambiguous as the humans who write it.
- sealthedeal 5y ago
  Yes, it’s all trust based. I.e. if some random bank in Iowa decides to just create $10,000,000 out of thin air, the Fed will eventually find out and then they would lose banking license, lots of penalties. Same goes for countries. If a countries fed just creates new money out of no where and acts as if it’s always existed they risk everything. I.e. losing access to the global banking network, insane currency fluctuations, use your imagination. The premise is the same though. Our entire financial system as it stands today is based off of trust with auditing oversight and harsh penalties for breaking that trust.
adolph 5y ago
It seems like the linked regulation is not yet implemented. Further, your response to a question about a guarantee is regulation and reports? How does anyone know the reports of another central bank are true? When a central bank fakes numbers, what are the consequences, if any, and who adjudicates them? Basel III was agreed upon by the members of the Basel Committee on Banking Supervision in November 2010, and was scheduled to be introduced from 2013 until 2015; however, implementation was extended repeatedly to 1 January 2022 and then again until 1 January 2023, in the wake of the Covid-19 pandemic.
- lxgr 5y ago
  Good point – I should have linked to the general concept instead: https://en.wikipedia.org/wiki/Basel_Accords https://en.wikipedia.org/wiki/Basel_Accords > Further, your response to a question about a guarantee is regulation and reports? How does anyone know the reports of another central bank are true? When a central bank fakes numbers, what are the consequences, if any, and who adjudicates them? Money, especially fiat money, is a social construct. The conformance with and violation of it is therefore within the domains of law and politics. > How does anyone know the reports of another central bank are true? Monetary theory is not my expertise, but I'm curious how a central bank report can even be "false" (assuming it is issuing fiat currency and isn't falsely claiming to be backed by foreign reserves or commodities, for example).
  - chii 5y ago
    > how a central bank report can even be "false" they issued money to institutions or individuals, but pretended that they didn't in the reports, thus creating untraceable money without oversight.
    - remram 5y ago
      How do they "issue money" if they don't report that transaction? Do you mean cash?

JumpCrisscross 5y ago

> How does the system guarantee that nobody's creating money without notifying everyone? Simple answer is balanced books. Longer answer is public reporting and reconciliation. If a bank shows its Federal Reserve balance at X on its asset side and the Federal Reserve shows its bank balance at 0.9X on its liability side, that will raise issue on reconciliation. The system lazily evaluates, however, which makes it nimble but also corruptible--if that bank never tries to spend that money, it may not come to light until audit.

civilized 5y ago
So, the bank can't flip a few bits in its databases and go "actually I have a quadrillion dollars now" because other people know how much money that bank should have based on transactions it has made? Do I have that right? Seriously I have wondered about this for decades. I don't know why this would be obvious to anyone.
- zrail 5y ago
  Ultimately it comes down to trust and verification layered on top of the explicit threat of banking license forfeiture.
- JumpCrisscross 5y ago
  > other people know how much money that bank should have based on transactions it has made? Approximately. Everyone keeps a running total of their bilateral transactions. This summing and sharding reduces information. But it also decentralizes accountability in a robust way. Add occasional audits (which allow trusted persons to evaluate the transaction record), and some of those parties' books (in the aggregate) being public record, thereby permitting every party (including third parties) to compare their books to theirs, and you get a system which tends towards accuracy.

Suncho 5y ago

> How does the system guarantee that nobody's creating money without notifying everyone? This is a comment that's not related to SWIFT in particular. Every asset (including money) is generally someone else's liability. The money that we hold as an asset is the liability of a bank. Anyone can issue their own liabilities, but you can't create money that's a liability of someone else. For example, I can't go to my bank and tell them I have a million dollars more in my deposit account than I actually do. They're keeping track on their end. Similarly, a bank can't pretend that it has more reserve deposits at the Fed than it really does. The Fed keeps track of everybody's reserve accounts on their end. > Furthermore, does the system guarantee that the central banks of each country are correctly adjusting their books in consequence? This isn't an issue. The books of central banks don't need to adjust when other banks issue money (i.e deposits).

dannyw 5y ago
To be more specific, central banks are allowed to create money. Their liability is /dev/null. It's how they added trillions to their balance sheet during COVID.
- endisneigh 5y ago
  Not really their liability is basically the present value of the future which is indeterminate, not null. If the future pain is greater than the present value, or billions printed, then they printed too much, otherwise it was worth it. You can’t really know for sure if it’s worth it now though.
  - baby 5y ago
    I think what he means is that they can literally credit an account with new money in their database and it would work.
    - endisneigh 5y ago
      Yes but my point is that the liability and asset paradigm described still will hold. It’s simply that the liabilities are held by people who aren’t born or are obsfucated to the point that people don’t realize they are holding them. Inflation is one example

yamrzou 5y ago

I read the other responses to your question, and I feel like they're all using complicated language and are still ambiguous. Can we have a simple "for dummies" answer that explains how does the system guarantee that nobody's creating money without notifying everyone in practice? Is there some kind of a public ledger? Do banks automatically broadcast their money creation operation to other banks?

TheOnly92 5y ago
Well the simple way to look at this is that usually when you transact with another bank, you're required to have an account at that bank. Just as a consumer can't magically change their balance, a bank simply can't magically increase their balance at other banks. To perform increased transactions, you have to send money to that bank.

baby 5y ago

The system can’t do that. As a matter of fact I know someone who works for a French bank, and they fucked up and created a bunch of money. They had to work overnight with a bunch of accountants going through the books to make sure they reverted everything. EDIT: apparently they use some old XML protocol, where twice a day a correspondant bank send them a list of accounts to debit or credit. They didn’t send something once, so my friend’s bank just replayed the previous settlement list.