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>Unlike fiat money in a bank, these exchange balances exist only in their walled gardens and cannot be exchanged for goods or services, effectively decoupling t
by NovemberWhiskey 4y ago
>Unlike fiat money in a bank, these exchange balances exist only in their walled gardens and cannot be exchanged for goods or services, effectively decoupling them from the total supply.
These are demand deposits with the exchanges/shadow-banks. You can (at least with some products; others look more like time deposits) withdraw your deposit at any time. This seems basically the same as a bank account where you can withdraw money at any time to buy goods or services.
I visit my "bank". I deposit my "currency" in a demand deposit account. I receive regular interest payments. My "bank" lends my "currency" to other people, in exchange for interest; presumably making a profit on the net interest margin. I can return to my "bank" at any time to withdraw my "currency".
How is this not credit creation? How is, e.g., Binance not operating as an unregulated shadow-bank without any kind of deposit insurance?
- lottin 4y agoNote that the money supply increases simply as a result of banks not holding full reserves against deposits. Whether the bank lends or not is not important, as far as the money supply is concerned. The same applies to crypto-currency exchanges, of course, which can inflate the circulating supply of bitcoins by lowering the reserve ratio, regardless of whether they engage in lending.
- Karunamon 4y agoYou have to convert your Exchange!BTC into BTC to spend it on goods or services. In other words, it has to hit the blockchain. If it is not on the blockchain, then what is being transacted is BTC in name only. You need not convert your bank balance into cash to spend it on goods or services. The balance itself can be used directly.