3 ms·

Because the backing of a state provides a veneer of credibility to the currency that your own say-so doesn't. Like, barter economies built on trust still exist

Because the backing of a state provides a veneer of credibility to the currency that your own say-so doesn't. Like, barter economies built on trust still exist and if that's what you want, knock yourself out. But at some point you want to pin down how many chickens your bedroom dresser is worth, which means you need a token to represent a value, which means you need someone or something to provide backing for the trust placed in the tokens. Unless this is a coy way to argue we should replace our currency with crypto (in which case the controllers of the consensus mechanism and/or the person(s) who designed the particular algorithm for ensuring inflation/deflation/stability are the "government" just as surely as the Fed are the government in the real world)

eru 5y ago
States actually have a very hard time giving credibility to their currency. You see, the problem is that governments are too powerful: they can not make promises that they can't break. In contrast, private companies have it much easier. They can use plain old contracts to bind themselves. Eg Amazon could issue physical notes and promise to redeem then in eg USD on demand. (Wal-Mart could issue tokens they promise to redeem in gold. Etc.) Amazon doesn't have to have one dollar on hand for each note they issue. As long as the overall balance sheet of Amazon is strong, they can sell assets to serve a sudden spike of redemption requests. (Historically, note-issuing banks in Scotland also had a tool to deal with situations where they were solvent but not liquid. The contracts that governed their notes gave them the option to delay redemption requests in return for paying a punitive interest rate. That way they could take a few days or weeks to liquidate assets as necessary.) Keep in mind that USD or gold or whatever provides the unit of account here, but not the backing. The notes would be (and historically were) backed by the whole balance sheet of the issuing banks. Scottish banks typically financed themselves with about 2/3 debt (bonds and deposits) and 1/3 equity. That's a rather thick equity cushion by today's standards, but it's what customers demanded. About crypto: if you really wanted to, Amazon could also denominate their notes in bitcoin. I don't think that's necessarily a good idea. (But I do think that _if_ bitcoin or crypto is going to ever become the underpinning of the global financial system, it will have to look a bit like what I just described.)
- notafraudster 5y ago
  The original pitch was "why does the government have to be involved in currency". You're proposing a hypothetical world where Amazon is a fractional reserve bank, but seemingly subject to no regulations that make it a fractional reserve bank -- because otherwise we're bank in the world where it's operating more or less as a government, except no longer even indirectly accountable to voters -- but also presumably there still exists a state that's regulating Amazon's balance sheet to enforce the trust of the balance sheet. So it still boils down to that the state's monopoly on the use of force is what guarantees the balance sheet is what guarantees the currency. In some bizarre ancap reality where there are multi-trillion dollar rug pulls because there's no stock regulation and every company uses their stock to leverage themselves into an unregulated fractional reserve bank and we also have some other third party non-governmental market maker scrip converting institution that tells you how many BezosBucks to a YahooYuan, then yes, I guess you have a world where no state is backing the currency. I would argue that the institutions that govern this process would still become quasi-sovereign. I don't really accept the Scottish retail bank note system as being non-state backed. For at least the last 200 years there has been some kind of regulatory linkage between the apparent retail bank note and the backing of a sovereign state. I can't speak to the deeper history here, but whether or not there exists song legal- or regulatory- jiu-jitsu, at some point somewhere down the stack a government is guaranteeing it.
  - eru 5y ago
    > The original pitch was "why does the government have to be involved in currency". You're proposing a hypothetical world where Amazon is a fractional reserve bank, but seemingly subject to no regulations that make it a fractional reserve bank -- because otherwise we're bank in the world where it's operating more or less as a government, except no longer even indirectly accountable to voters -- but also presumably there still exists a state that's regulating Amazon's balance sheet to enforce the trust of the balance sheet. So it still boils down to that the state's monopoly on the use of force is what guarantees the balance sheet is what guarantees the currency. No regulation, apart from standard contract law. Just like, eg, a shoe factory by and large doesn't have special shoe regulation. And we don't say that the government is particularly involved in producing shoes. I am not arguing against any taint of government at all here. Just that government need be involved no more than in the production of shoes or any other widget. Why does Amazon need to be subject to voters? They are subject to control by shareholders and the whim of consumers. The Scottish banking system of the 19th century was close to what I describe. The current Scottish system ain't. (Similar for the Canadian system.) Governments were emphatically not backing these. That's part of why they worked: customers and business partners were incentivized to keep an eye on their bank's balance sheet. I don't get your argument about the (quasi) sovereignty? Amazon already issues gift cards today, and what I describe could evolve gradually from there (with some loosening of regulations) without Amazon acquiring anything like sovereignty in the process. See also how mobile phone service providers got into financial services in many poor countries. That development was at first completely unplanned by the companies and driven by customers trading airtime vouchers (or rather the codes on them) as if they were money. Later on the companies added the ability to transfer balances. No sovereignty involved; unless you have a very expansive definition of that concept? > In some bizarre ancap reality where there are multi-trillion dollar rug pulls because there's no stock regulation and every company uses their stock to leverage themselves into an unregulated fractional reserve bank and we also have some other third party non-governmental market maker scrip converting institution that tells you how many BezosBucks to a YahooYuan, then yes, I guess you have a world where no state is backing the currency. I would argue that the institutions that govern this process would still become quasi-sovereign. I'm not sure how you do rug pulls in this setting? There's still normal contract liability; and Amazon would contractually promise to redeem their notes in a base unit that Amazon doesn't control. (You can also have pure fiat systems, were Amazon backs are not redeemable in anything else. But historically, customers only accepted private notes redeemable in some outside money.) As an aside: in practice these sort of systems also work without a government enforcing things. See https://en.wikipedia.org/wiki/Hawala https://en.wikipedia.org/wiki/Hawala for an example of similar systems. (But let's not discuss that too much; I only wanted to make the weaker claim that money-printing doesn't need special regulation, and can be treated like any other general industry.)

eru 5y ago

States actually have a very hard time giving credibility to their currency. You see, the problem is that governments are too powerful: they can not make promises that they can't break. In contrast, private companies have it much easier. They can use plain old contracts to bind themselves. Eg Amazon could issue physical notes and promise to redeem then in eg USD on demand. (Wal-Mart could issue tokens they promise to redeem in gold. Etc.) Amazon doesn't have to have one dollar on hand for each note they issue. As long as the overall balance sheet of Amazon is strong, they can sell assets to serve a sudden spike of redemption requests. (Historically, note-issuing banks in Scotland also had a tool to deal with situations where they were solvent but not liquid. The contracts that governed their notes gave them the option to delay redemption requests in return for paying a punitive interest rate. That way they could take a few days or weeks to liquidate assets as necessary.) Keep in mind that USD or gold or whatever provides the unit of account here, but not the backing. The notes would be (and historically were) backed by the whole balance sheet of the issuing banks. Scottish banks typically financed themselves with about 2/3 debt (bonds and deposits) and 1/3 equity. That's a rather thick equity cushion by today's standards, but it's what customers demanded. About crypto: if you really wanted to, Amazon could also denominate their notes in bitcoin. I don't think that's necessarily a good idea. (But I do think that _if_ bitcoin or crypto is going to ever become the underpinning of the global financial system, it will have to look a bit like what I just described.)

notafraudster 5y ago
The original pitch was "why does the government have to be involved in currency". You're proposing a hypothetical world where Amazon is a fractional reserve bank, but seemingly subject to no regulations that make it a fractional reserve bank -- because otherwise we're bank in the world where it's operating more or less as a government, except no longer even indirectly accountable to voters -- but also presumably there still exists a state that's regulating Amazon's balance sheet to enforce the trust of the balance sheet. So it still boils down to that the state's monopoly on the use of force is what guarantees the balance sheet is what guarantees the currency. In some bizarre ancap reality where there are multi-trillion dollar rug pulls because there's no stock regulation and every company uses their stock to leverage themselves into an unregulated fractional reserve bank and we also have some other third party non-governmental market maker scrip converting institution that tells you how many BezosBucks to a YahooYuan, then yes, I guess you have a world where no state is backing the currency. I would argue that the institutions that govern this process would still become quasi-sovereign. I don't really accept the Scottish retail bank note system as being non-state backed. For at least the last 200 years there has been some kind of regulatory linkage between the apparent retail bank note and the backing of a sovereign state. I can't speak to the deeper history here, but whether or not there exists song legal- or regulatory- jiu-jitsu, at some point somewhere down the stack a government is guaranteeing it.
- eru 5y ago
  > The original pitch was "why does the government have to be involved in currency". You're proposing a hypothetical world where Amazon is a fractional reserve bank, but seemingly subject to no regulations that make it a fractional reserve bank -- because otherwise we're bank in the world where it's operating more or less as a government, except no longer even indirectly accountable to voters -- but also presumably there still exists a state that's regulating Amazon's balance sheet to enforce the trust of the balance sheet. So it still boils down to that the state's monopoly on the use of force is what guarantees the balance sheet is what guarantees the currency. No regulation, apart from standard contract law. Just like, eg, a shoe factory by and large doesn't have special shoe regulation. And we don't say that the government is particularly involved in producing shoes. I am not arguing against any taint of government at all here. Just that government need be involved no more than in the production of shoes or any other widget. Why does Amazon need to be subject to voters? They are subject to control by shareholders and the whim of consumers. The Scottish banking system of the 19th century was close to what I describe. The current Scottish system ain't. (Similar for the Canadian system.) Governments were emphatically not backing these. That's part of why they worked: customers and business partners were incentivized to keep an eye on their bank's balance sheet. I don't get your argument about the (quasi) sovereignty? Amazon already issues gift cards today, and what I describe could evolve gradually from there (with some loosening of regulations) without Amazon acquiring anything like sovereignty in the process. See also how mobile phone service providers got into financial services in many poor countries. That development was at first completely unplanned by the companies and driven by customers trading airtime vouchers (or rather the codes on them) as if they were money. Later on the companies added the ability to transfer balances. No sovereignty involved; unless you have a very expansive definition of that concept? > In some bizarre ancap reality where there are multi-trillion dollar rug pulls because there's no stock regulation and every company uses their stock to leverage themselves into an unregulated fractional reserve bank and we also have some other third party non-governmental market maker scrip converting institution that tells you how many BezosBucks to a YahooYuan, then yes, I guess you have a world where no state is backing the currency. I would argue that the institutions that govern this process would still become quasi-sovereign. I'm not sure how you do rug pulls in this setting? There's still normal contract liability; and Amazon would contractually promise to redeem their notes in a base unit that Amazon doesn't control. (You can also have pure fiat systems, were Amazon backs are not redeemable in anything else. But historically, customers only accepted private notes redeemable in some outside money.) As an aside: in practice these sort of systems also work without a government enforcing things. See https://en.wikipedia.org/wiki/Hawala https://en.wikipedia.org/wiki/Hawala for an example of similar systems. (But let's not discuss that too much; I only wanted to make the weaker claim that money-printing doesn't need special regulation, and can be treated like any other general industry.)