4 ms·

This story is particularly relevant because it's about the Bank of England trying to maintain a peg in the face of changing market conditions. Many have treated

by jmyeet 5y ago

This story is particularly relevant because it's about the Bank of England trying to maintain a peg in the face of changing market conditions. Many have treated Tether's peg (to the USD) as immutable or inviolate but it's subject to the same market forces as any other peg. A peg is only as strong as how much money you have to defend it. But here we are as Crypto Andys are learning the hard way why the financial system is the way it is.

imtringued 5y ago
> A peg is only as strong as how much money you have to defend it. Emphasis on liquid money. You know, the reason why central banks started QE is that banks don't want to invest into long term assets and just keep their reserves at the central bank. QE effectively turned a fixed term asset like treasuries into a short term overnight asset that you can sell and buy instantly.
id 5y ago
"Crypto Andys" already know this, the crypto community has been deeply distrustful of Tether since its inception.
- cinntaile 5y ago
  Both you and the parent are generalizing.
- codebolt 5y ago
  If the wider "crypto community" has been so distrustful of Tether, why have they allowed it to become such a systemically important pillar of the whole market?
belter 5y ago
I love "Crypto Andys" :-) but nowadays I prefer to call them "Bitcoin Karens"
sgt101 5y ago
The differences being for large states that it was/is a question of how much you want to spend defending something, rather than how much you have, unless you are under attack by another state. And, for a large state run by rule of law it's not a question of going to 0 as for stable coins, instead it's going down by 20% (worst case).
- pjc50 5y ago
  Indeed. A currency peg is effectively an import subsidy/export tax arrangement. If the balance of payments is sound, it's easy to maintain. Otherwise it isn't, as you will gradually run out of export tax to pay for the import subsidy.
hnthrowaway0328 5y ago
Tether IMO is a completely different story. What does it have to back up the peg?
- gruez 5y ago
  Mostly "commercial paper" (debts)
  - hnthrowaway0328 5y ago
    Governments have violence and it is even better than gold/wood/whatever commodity. What does Tether have?
  - chalst 5y ago
    Debts held by a company that has refused to be subject to a traditional audit. Only the credulous would have confidence that a high proportion of this debt is good.
- chalst 5y ago
  The initial claim was that Tether was 100% backed. When it was revealed beyond reasonable doubt that these claims were false, Tether's proponents pivoted to claiming that the peg was defensible. Because the peg was defended for some time, these proponents gained a certain amount of credibility among the gullible. Looking at the history of markets to try to understand the difference between pegs that can withstand the shifting tides of market sentiment vs those that cannot is a useful exercise. I am pleased to see this article on the HN front page.
pru567 5y ago
TerraUSD is more immediately relevant https://www.zerohedge.com/crypto/stablecoin-terra-collapses-digital-bank-run-founder-outlines-path-forward https://www.zerohedge.com/crypto/stablecoin-terra-collapses-...
neilwilson 5y ago
"A peg is only as strong as how much money you have to defend it." Which is why, in the case of the Soros story, it was the Bundesbank that broke the BoE, not Soros. The Bundesbank refused to issue DMs to buy up spare GBP liquidity. And that broke the peg. For a peg to work the currency issuers on both side of the fence need to act in unison, since intervention can only cap, not collar. If both play their part then the peg will be unimpeachable. Until the Federal Reserve decides to maintain stable coin pegs by buying them up in return for new dollars when the dollar strengthens against them, then the whole concept is doomed. It's not the market that decides whether a peg survives. It's the currency issuer on the strengthening side.
plsbenice34 5y ago
It has no relevance to tether. It's strategically trivial to peg 'paper USD' to USD by having full USD reserves and allowing redemption. Pegs between different national currencies has no such solution
- deleted 5y ago
  [deleted]

by jmyeet 5y ago

imtringued 5y ago

> A peg is only as strong as how much money you have to defend it. Emphasis on liquid money. You know, the reason why central banks started QE is that banks don't want to invest into long term assets and just keep their reserves at the central bank. QE effectively turned a fixed term asset like treasuries into a short term overnight asset that you can sell and buy instantly.

id 5y ago

"Crypto Andys" already know this, the crypto community has been deeply distrustful of Tether since its inception.

cinntaile 5y ago
Both you and the parent are generalizing.
codebolt 5y ago
If the wider "crypto community" has been so distrustful of Tether, why have they allowed it to become such a systemically important pillar of the whole market?

belter 5y ago

I love "Crypto Andys" :-) but nowadays I prefer to call them "Bitcoin Karens"

sgt101 5y ago

The differences being for large states that it was/is a question of how much you want to spend defending something, rather than how much you have, unless you are under attack by another state. And, for a large state run by rule of law it's not a question of going to 0 as for stable coins, instead it's going down by 20% (worst case).

pjc50 5y ago
Indeed. A currency peg is effectively an import subsidy/export tax arrangement. If the balance of payments is sound, it's easy to maintain. Otherwise it isn't, as you will gradually run out of export tax to pay for the import subsidy.

hnthrowaway0328 5y ago

Tether IMO is a completely different story. What does it have to back up the peg?

gruez 5y ago
Mostly "commercial paper" (debts)
- hnthrowaway0328 5y ago
  Governments have violence and it is even better than gold/wood/whatever commodity. What does Tether have?
- chalst 5y ago
  Debts held by a company that has refused to be subject to a traditional audit. Only the credulous would have confidence that a high proportion of this debt is good.
chalst 5y ago
The initial claim was that Tether was 100% backed. When it was revealed beyond reasonable doubt that these claims were false, Tether's proponents pivoted to claiming that the peg was defensible. Because the peg was defended for some time, these proponents gained a certain amount of credibility among the gullible. Looking at the history of markets to try to understand the difference between pegs that can withstand the shifting tides of market sentiment vs those that cannot is a useful exercise. I am pleased to see this article on the HN front page.

pru567 5y ago

TerraUSD is more immediately relevant https://www.zerohedge.com/crypto/stablecoin-terra-collapses-digital-bank-run-founder-outlines-path-forward https://www.zerohedge.com/crypto/stablecoin-terra-collapses-...

neilwilson 5y ago

"A peg is only as strong as how much money you have to defend it." Which is why, in the case of the Soros story, it was the Bundesbank that broke the BoE, not Soros. The Bundesbank refused to issue DMs to buy up spare GBP liquidity. And that broke the peg. For a peg to work the currency issuers on both side of the fence need to act in unison, since intervention can only cap, not collar. If both play their part then the peg will be unimpeachable. Until the Federal Reserve decides to maintain stable coin pegs by buying them up in return for new dollars when the dollar strengthens against them, then the whole concept is doomed. It's not the market that decides whether a peg survives. It's the currency issuer on the strengthening side.

plsbenice34 5y ago

It has no relevance to tether. It's strategically trivial to peg 'paper USD' to USD by having full USD reserves and allowing redemption. Pegs between different national currencies has no such solution

deleted 5y ago
[deleted]