4 ms·

Primary dangers are that an account directly at the Fed is safer than literally anything else. It's safer than US Treasury Bonds or any other type of bank accou

Primary dangers are that an account directly at the Fed is safer than literally anything else. It's safer than US Treasury Bonds or any other type of bank account. So in a financial crisis similar to 2008 where you're uncertain of institutions financial state the safest course of action is to withdraw/sell everything and move it to the Fed. But if you sell US Treasury Bonds you're effectively spiking interest rates on the cost of the government to borrow, which is exactly what you don't want to do during a recession/financial crisis as the government maybe the only party who can fix whatever is going on and they may need to borrow heavily to do it (as in 2008). So you make a bad situation potentially much worse. As for CBDC's, I don't know the specifics of how they might implement them, but I have to assume they will want to avoid the above scenario, although granted given a crypto currency would have the attributes of physical cash but the convenience of being trivial to store and use I don't know how you avoid that. Unless CDBC's can only be held in authorised institutions accounts (banks) and not effectively in cash form which is something I could potentially see them doing.

anamax 4y ago
It seems like you're arguing that ordinary people have a duty to lose money when things go wrong, things that they probably had no control over.
- dageshi 4y ago
  Ordinary people have FDIC insurance up to 250k and can spread their money across multiple banks for more. So the people who would need to make use of this are those with so much money that they cannot insure all of it across all the banks available. In other words, no, this does not effect "ordinary people" at all, it effects rich people.
pjc50 4y ago
> But if you sell US Treasury Bonds you're effectively spiking interest rates on the cost of the government to borrow Simple solution: given all the money is now parked at the Fed, have the Fed buy treasuries. The whole operation is also susceptible to the interest rate market. So if the Fed doesn't want all this money it can charge for the stability service by setting the rate negative. There's something to be said for the idea that the Fed provides an important global service called "stability", and if people want to benefit from this they should be allowed to buy in directly and pay for it directly. I've even wondered if this would be a great way to clobber the crypto stablecoin market by providing US stabledollar services to overseas non US nationals, but I suspect for other policy reasons they really don't want to do that.
- dageshi 4y ago
  It would be the opposite of stability though. While I gave the example of US Treasuries as a worst case scenario in reality before we get to them half the financial system would've been drained to the Fed. People would pull their money out of regular bank accounts and stick it in the Fed even at negative interest rates because a predictable percentage (probably small) loss is better than uncertainty that your bank might fail. That is the complete opposite of stability, it's a worse kind of chaos than what would happen now. There's a myriad of complicated and dangerous side effects from this for a benefit that frankly isn't useful for most people (due to FDIC insurance). So the only people it makes sense for are those relatively rich people who ought to be able to diversify their savings/investments to protect themselves.

anamax 4y ago

It seems like you're arguing that ordinary people have a duty to lose money when things go wrong, things that they probably had no control over.

dageshi 4y ago
Ordinary people have FDIC insurance up to 250k and can spread their money across multiple banks for more. So the people who would need to make use of this are those with so much money that they cannot insure all of it across all the banks available. In other words, no, this does not effect "ordinary people" at all, it effects rich people.

pjc50 4y ago

> But if you sell US Treasury Bonds you're effectively spiking interest rates on the cost of the government to borrow Simple solution: given all the money is now parked at the Fed, have the Fed buy treasuries. The whole operation is also susceptible to the interest rate market. So if the Fed doesn't want all this money it can charge for the stability service by setting the rate negative. There's something to be said for the idea that the Fed provides an important global service called "stability", and if people want to benefit from this they should be allowed to buy in directly and pay for it directly. I've even wondered if this would be a great way to clobber the crypto stablecoin market by providing US stabledollar services to overseas non US nationals, but I suspect for other policy reasons they really don't want to do that.

dageshi 4y ago
It would be the opposite of stability though. While I gave the example of US Treasuries as a worst case scenario in reality before we get to them half the financial system would've been drained to the Fed. People would pull their money out of regular bank accounts and stick it in the Fed even at negative interest rates because a predictable percentage (probably small) loss is better than uncertainty that your bank might fail. That is the complete opposite of stability, it's a worse kind of chaos than what would happen now. There's a myriad of complicated and dangerous side effects from this for a benefit that frankly isn't useful for most people (due to FDIC insurance). So the only people it makes sense for are those relatively rich people who ought to be able to diversify their savings/investments to protect themselves.