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The Casino-Chip Society

208 points by Gigamouse 4y ago

alexb_ 4y ago
This is a fantastic post - I'm 100% going to start using the term "Casino-Chip Society" whenever I talk about "cashless" society. There is another reason that cashless society is awful that was not talked about in this article, but I think is just as important - a digital dollar means that you have a dollar where it is impossible to commit crime. While that sounds like a good thing (who wants crime?), it very much stops being a good thing as soon as you bump up with laws that go against your morals. Designing systems with the assumption that we will always have democratic and free government is a horrendous idea, allowing the government to have a complete record and log of every single transaction you ever make, as well as having the ability to stop you using digital money, makes it so easy for fascists.
- uoaei 4y ago
  > it very much stops being a good thing as soon as you bump up with laws that go against your morals A pretty explicit part of the fascist ideology per se is that laws are merely morals that are written down and enforced. The idea is that people adopt their moral code from the central government who defines how people "should" perceive the world in order to make citizens obedient to the dogma of the state. Willing fascists do everything they can to dissolve any notion of personal choice in the matter, for themselves and for others, and by their very constitution cannot conceive of morals existing outside of a system of authority.
  - SQueeeeeL 4y ago
    Wait, so does that mean the "War on Drugs" wasn't making me more free??? The US Government would never do anything fascist so obviously you're wrong.
    - alexb_ 4y ago
      All laws make you less free. Laws exist to restrict freedoms in order to create a better society - what a better society means is the part where political differences come up. Most people can agree on laws existing to prevent harm unto others, but then what does that mean? Answers depend on your values and goals, and are fundamentally what politics are. The point is though, all laws make someone "less free", because the purpose of law is to prohibit.
      - js8 4y ago
        > The point is though, all laws make someone "less free", because the purpose of law is to prohibit. I think you're wrong. Not all laws prohibit. For example, take a law that establishes public libraries. It doesn't prohibit anybody from anything.
        SQueeeeeL 4y ago
        Nah, all government is bad. Socialism is when the government spends money, freedom is when I get paid $5 an hour and eat trans fats
        alexb_ 4y ago
        When exactly did I say that all government is bad? I personally think it's great the government restricts the right of people to commit murder.
        Spooky23 4y ago
        Why? The market would take care of it. Instead of police, just hire security.
        jacobr1 4y ago
        This is one of the problems with polarization. The legitimate points of one side get grouped in with all the other ridiculous crap. Every law, every program has a cost. Many times this costs are worth it. And there are plenty of times where they aren't, or have unintended side-effects. Pointing out these costs and forcing society to recognize them as explicit decisions and tradeoffs is one of the key benefits of the Right, even if you disagree on where they fall on the balance of net-benefits in the final analysis. TANSTAAFL
  - Karellen 4y ago
    What else are laws - even in a democracy - if not "merely morals that are written down and enforced"?
    - aidenn0 4y ago
      I think the difference is that the totality of morality is supposed to come from the state in Fascism. A well functioning society necessarily ought not legally forbid things that I consider immoral, which allows for personal autonomy with regards to ethics.
      - jhbadger 4y ago
        I think that would be better stated as in totalitarianism, the totality of morality is supposed to come from the state. Fascism is only one form of totalitarianism.
    - uoaei 4y ago
      The issue is in the word "merely". Of course the goal of law writ large is to engender "good" conditions in a society by restricting "bad" elements and encouraging "good" ones. In this sense the law has a moral quality. Roughly speaking, "law" is morality as practiced by a state. The difference is in the acknowledgment or ignorance of the laws' congruence with the moralities of the citizens' opinions and preferences those laws are meant to represent. One could say the entire goal of democracy is the messy process of aligning the state's morality with the collective morality of its citizens. Fascism is then comparable to defining a single normative moral position and imposing it on the entire populace unilaterally. In short, the question is: whose morals?
    - OkayPhysicist 4y ago
      Laws and morals are both normative claims about the actions of individuals, but while morals are concerned with individual actions, laws must be concerned about societal-level ramifications of not just the actions, but also the enforcement of law. For example, most people would agree that adultry is bad and immoral. But as a society we've decided that its immorality isn't sufficient to overcome the ills of being punishable by the state, and thus it ought not to be illegal. Stealing to feed your starving family is moral, but we don't want to support theft in general so its illegal. In a free society, one must recognize that legality ought loosely follow morality, with the ideal being that illegal actions are the strict subset of immoral actions which cause greater ill than the enforcement of their illegality. In the absence of an oracle into objective good and evil, a society must err on the side of not making things illegal which could potentially either be not worse than the ill of their enforcement, or not be immoral at all. The all-to-common trap is to confuse the direction of influence: morality should influence legality, never the other way around. Allowing legality to influence one's perception of morality is simply surrendering your autonomy to those who greatest influence the law, and is a sure-fire path to authoritarianism.
- akira2501 4y ago
  > a digital dollar means that you have a dollar where it is impossible to commit crime Maybe. You'll probably just be able to convert it to some other form of value at a loss and then continue from there. Plenty of governments have envisioned the end of the "black market" only to be shown how utterly impossible that idea is.
  - bombcar 4y ago
    That's the thing that wasn't explicit in the article; that each time you "switch layers" you often incur fees - if you're going down or back. You can deposit cash at a bank and get it back, but that's almost an exception. Once you get into layer 3 it is harder and harder to get back to layer 1 or 2 without losing "some value" - gift cards being the most obvious example.
    - uoaei 4y ago
      > You can deposit cash at a bank and get it back, but that's almost an exception. You get back the same cash but you almost certainly don't get back the same value due to inflation.
      - bombcar 4y ago
        True, but that hits you if you just stuff 20s in your mattress (which is why inflation is the most effective flat tax we have).
      - bruce511 4y ago
        >> You get back the same cash No you don't, or at least, no I don't. My bank has fees for depositing cash (more than x times a month), fees for withdrawing cash (even at an atm) and fees for holding my cash (having an account.) Trading in cash is _really_ expensive.
        senortumnus 4y ago
        This is surprising. You should consider other banks.
- knowaveragejoe 4y ago
  The history of civil rights progress is characterized by marginally deviant behavior(for the time) slowly becoming more accepted and mainstream. Take LGBT rights or marijuana for example. If you disallow even the slightest level of deviance than you potentially neuter the ability of money to participate in that process.
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- bruce511 4y ago
  So let's say I have lots of level 2 money. I go to various banks and trade in the level 2 for level 1. I take my billions of level 1,and stick it in a warehouse. Maybe one day I even set it on fire. What does this mean? Does the fed recognizes the loss, and just print more? Have I in effect just shrunk the economy? My level 2 money is still in the system, its just the paper has vanished. By extension, say every person loses one $10 bill every year, in an unrecoverable (by anyone) way. Presumably that's factored into the money supply? Is changing the paper (as in the UK this year) a way of "cleaning the balance sheet" - effectively preventing some truly monster hoard from suddenly appearing? So many questions...
  - galaxyLogic 4y ago
    What I'm wondering is .. when you own stocks of companies it is like having one type of currency, one per company or fund. (right?). Now when the stock-market goes down I lose money. And so do most people who own stocks. Where does that lost money go? Everybody lost a lot in the most recent downturn and (most) nobody gained. We simply have less "value" now. Where did that value go? How could it have just vanished?
    - jack_pp 4y ago
      For the value of a stock to go down people have to sell it. What the people who have not sold lost, the people who have sold gained. Overall the money supply has not changed, money has just moved from holders to sellers
    - bruce511 4y ago
      So that's level 3 value right? It's not money (level 1) or even chips (level 2). So I'd say it's inaccurate to say you lost money. More accurate to say you lost value. When the shares were issued (out of thin air) they had speculative value - they are promises for future dividends (presumably level 2) based on future profits. The stock market acts as a level 2/level 3 swap place, and hence let's you calculate the "current level 2 price" of your level 3 paper. So yes, the value simply got lost. But balance that with the way it simply got created in the first place. And bear in mind that _all_ shares go to 0 in the long run. Ultimately the future arrives and that future value speculation is fully realised.
- bombolo 4y ago
  > Designing systems with the assumption that we will always have democratic and free government is a horrendous idea I wonder if that's why germans are so against anything that is privacy invading while swedish people are quite happy to have their home address publicly known.
- badpun 4y ago
  > a digital dollar means that you have a dollar where it is impossible to commit crime. This is overly definitive. For example, in Poland, it's illegal to run a private online poker site and yet there's plenty of operators doing it. They offer digital money transfers via payment processors which specialize in skirting the law, such as Neteller, Payza etc. The Polish state doesn't care enough about its own laws regarding online gambling to clamp down on such practices and so people are happily commiting crimes using the "digital dollar".
  - akiselev 4y ago
    The GP phrased that way too much like an allegory from under a rock and not enough like an internet comment. (I think) He means that digital currencies remove plausible deniability. The Polish government can both claim to crack down on gambling to its conservative supporters and at the same time avoid investing too many resources in pointless anti-vice enforcement. The second they have a digital ledger of all transactions in the country, they either have to get real with their conservative supporters who will vote them out or really go after all the people gambling whose bookies will drag them out from their beds. Politics is a balancing act.
  - quickthrower2 4y ago
    With better surveillance tech (no cash being an example of this) you can pave the way for future governments to exercise that power in bad ways even if the current one is lenient.
  - mymythisisthis 4y ago
    In Canada, casinos are used to wash money, https://www.cp24.com/news/mystery-shoppers-sent-to-ontario-casinos-made-away-with-over-35k-despite-not-having-proof-of-winnings-1.6175095 https://www.cp24.com/news/mystery-shoppers-sent-to-ontario-c... The government makes too much from casinos, and doesn't care.
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jrm4 4y ago
This is so good. I was in another thread suggesting that, even if you hate crypto, it's still valuable to understand and accept the "fiat is all made up" idea, even if it's often badly stated and argued. I have a degree in economics, but I confess I really didn't understand the whole thing until much later in life, when I was able to look at it through the lens of e.g. video game design. Which is to say, there are real consequences and real effects of actions -- but the economy still isn't something like "nature" or "scientific" despite what many would have you believe. It's much more like a designed game who's rules can be tweaked, sometimes arbitrary, etc.
- anon291 4y ago
  This post said nothing about fiat other than that people trust it. Fiat is not the L2 in this system. It is the L1 state issued currency. Bitcoin is analogous to fiat in the crypto world and the exchanges/custodial wallets the L2
  - igorkraw 4y ago
    But in the real world, bitcoin and indeed all of crypto is a/are token/s without an army behind it or any form of legal promises except those conferred to them by $L1. Unless you want to go to El Salvador or that one other nation that made it legal tender, Bitcoin is L2 (and a shitty one at that looking at stability, fees and speed)
    - TreeRingCounter 4y ago
      Bitcoin doesn't need petrodollar warfare like the dollar does.
      - ben_w 4y ago
        It has as much need for it as the dollar, which is either "both need it" if you're focusing on the warfare part and using "petrodollar" as rhetorical emphasis, or "neither needs it" if you're focusing on literally the support of petroleum and using "warfare" as rhetorical emphasis. "Both" is because guns beat bits. Or, to put it another way, if the USA had used Bitcoin instead of dollars in 1960, the Soviet Union would've been just as much a threat, and similarly the forced nationalisation in Cuba after the revolution would've happened no matter who recorded what on any blockchain. "Neither" is because petroleum is just one of the major energy sources of the last century, vital for the industrial strength of the US economy and its capacity to actually make things worth buying (in addition to uselessly trinkets), but not the power source of the next century.
guelo 4y ago
I think the article would have been better if it used standard money supply definitions M0, M1, M2, and M3 instead of the "Layer" terminology. That way the reader would be able to carry that knowledge to other conversations. But an advantage of his terminology is that it keeps the layers separate while the standard definitions are nested, so M1 includes M0, M2 includes M1, M3 includes M2. With his layered model he is able to highlight some of the power struggles more easily.
teddyh 4y ago
I also liked this JWZ blog post: (https://www.jwz.org/blog/2016/08/like-regular-money-but-more-fun/ https://www.jwz.org/blog/2016/08/like-regular-money-but-more...) HN link: https://kilobytely.com/sh6vk9ync1qf4tzod2rg5uj8xmb0ti7wlazod2rg5u6vk9ync1qf4ti7pe3sh6vk9ync1q9ync1qf4ti7wlauj8xmb0pe3sh6vmb0pe3sh6vk9ynlazod2rg5uj8xmnc1qf4ti7wlazoi7wlazod2rg5ujqf4ti7wlazod2rync1qf4ti7wlaz8xmb0pe3sh6vk97wlazod2rg5uj8h6vk9ync1qf4tie3sh6vk9ync1qfvk9ync1qf4ti7w3sh6vk9ync1qf4lazod2rg5uj8xmxmb0pe3sh6vk9ype3sh6vk9ync1qti7wlazod2rg5uti7wlazod2rg5ud2rg5uj8xmb0pexmb0pe3sh6vk9y4ti7wlazod2rg59ync1qf4ti7wlanc1qf4ti7wlazomb0pe3sh6vk9yne3sh6vk9ync1qfsh6vk9ync1qf4t1qf4ti7wlazod2g5uj8xmb0pe3shg5uj8xmb0pe3shh6vk9ync1qf4tiqf4ti7wlazod2r9ync1qf4ti7wlarg5uj8xmb0pe3swlazod2rg5uj8x6vk9ync1qf4ti7sh6vk9ync1qf4t8xmb0pe3sh6vk9zod2rg5uj8xmb0azod2rg5uj8xmb5uj8xmb0pe3sh6ync1qf4ti7wlazod2rg5uj8xmb0pzod2rg5uj8xmb0xmb0pe3sh6vk9yazod2rg5uj8xmbwlazod2rg5uj8xwlazod2rg5uj8xlazod2rg5uj8xm3sh6vk9ync1qf45uj8xmb0pe3sh6zod2rg5uj8xmb0lazod2rg5uj8xmk9ync1qf4ti7wlf4ti7wlazod2rgj8xmb0pe3sh6vk8xmb0pe3sh6vk94ti7wlazod2rg5od2rg5uj8xmb0pi7wlazod2rg5ujb0pe3sh6vk9ync4ti7wlazod2rg50pe3sh6vk9ync1nc1qf4ti7wlazod2rg5uj8xmb0pelazod2rg5uj8xmd2rg5uj8xmb0pec1qf4ti7wlazodlazod2rg5uj8xmh6vk9ync1qf4tic1qf4ti7wlazodazod2rg5uj8xmbazod2rg5uj8xmb9ync1qf4ti7wlavk9ync1qf4ti7w8xmb0pe3sh6vk9pe3sh6vk9ync1qb0pe3sh6vk9yncwlazod2rg5uj8xzod2rg5uj8xmb04ti7wlazod2rg5d2rg5uj8xmb0peqf4ti7wlazod2rf4ti7wlazod2rgi7wlazod2rg5uj6vk9ync1qf4ti7lazod2rg5uj8xm0pe3sh6vk9ync14ti7wlazod2rg58xmb0pe3sh6vk9lazod2rg5uj8xm2rg5uj8xmb0pe3vk9ync1qf4ti7wg5uj8xmb0pe3shazod2rg5uj8xmb0pe3sh6vk9ync1 https://kilobytely.com/sh6vk9ync1qf4tzod2rg5uj8xmb0ti7wlazod...
jimmaswell 4y ago
So I'm paid in casino chips, pay my mortgage and credit cards with casino chips, pay my taxes with casino chips, and only ever use real money at the laundromat. Seems like the chips are more "real" and relevant at this point than the pieces of paper with no intrinsic value.
- IntFee588 4y ago
  That's not what he's saying. The "digital money" can be real if it is put into circulation by the central bank, by buying assets. There is no inherent connection to paper currency. You may feel like you're above this, but this excess leverage in the economy affects everyone who has a mortgage, works a job, or participates in the traditional economy in any way. For instance, businesses regularly draw on their credit facilities to make pay, and even well-run businesses usually hold debt. The artificially set price of these "chips" has a massive effect on all sectors.
  - Semaphor 4y ago
    But they are still the same, just more convenient. The state gives the money value, be it paper or digital. They could even create a third currency, literal plastic chips, and they’d also be the same. The articles goes from condescending to their conclusion, but they just fake explaining anything, they don’t actually.
teddyh 4y ago
The funny thing is, what he calls “Layer 1 cash” is not the lowest layer. Most cash currencies were issued as tokens which could themselves be reimbursed for gold or silver by the issuing state or bank. The current level of cash (which he tries to defend) is already one level removed from what was originally valued. One could see where gold bugs and silverites get their thinking from. But, one could argue, if most people really think there’s only one type of money, isn’t that by then by definition, true? I.e. if other people value a “layer 2 digital chip” as much as “layer 1 cash”, aren’t both worth the same to me, since I can get the same worth from them both? And, therefore, why should we care anything about any shift from layer 1 to layer 2, since the shift from layer 0 to layer 1 seems to not be a problem now? This is a limited view, and is true solely if you look only at the two forms’ notional “value”. Hovever, the differences between the two lie instead in the technical limitations in how they can be used. If layer 1 cash cannot be used by, say, online retailers, or in certain shops, that form might have less value for me, if I want to buy something online or in those shops. On the other hand, if layer 2 digital chips cannot be used without the bank (and state) getting and keeping a permanent log of all my transactions, and also makes it impossible to send money to what either the government or the credit card companies deem to be unsuitable destinations, then I might value that form less. It all depends on what you, yourself, value, or (by extension), what freedoms and/or conveniences you want society as a whole to have. He chooses to defend “the balance of power” between the two. We must all make our own choices here, and remember that all our actions will affect the balance.
- Nursie 4y ago
  I'm not sure why you're being downvoted here, this is all good sense - if "Layer 2" casino chips are actually more useful to me, and interoperate seemlessly with "layer 1", there seems no particular reason to care about the power struggle the author frames, or even paint it in terms of a struggle. AFAICT there is no war between the Bank of England and the banks in the UK over who gets to issue the money, no conflict, just the system running as it is designed with various participants in their niche. The author likes to paint proponents of cashless societies as naive, but to me it looks like they have decided there's a moral component and a battle where it seems really there is none, or at least it is a political/idealogical viewpoint they are superimposing on the situation.
EGreg 4y ago
As of 2020, the Federal Reserve lowered reserve requirements to ZERO. And in Canada too. That means banks can now issue money without being required to back it by L1 money. Those trillions “printed” and given out to people as PPP loans were originated by banks. But the loan forgiveness comes from where? Who pays the liabilities these banks have to each other? Technically, the banks can simply cancel liabilities they have to each other. If Bank A issues a loan or credit card and it is redeemed for credits in Bank B, while Bank B does the same for bank A, then the banks can simply cancel out their debt to each other when they settle their balances periodically using the Automated Clearing House (ACH) system that is also run by the Federal Reserve. So banks can issue a ton of money to spur economic activity, and then cancel the debts to each other and take it out of circulation. I started https://intercoin.org https://intercoin.org to making an alternative way to the banking system, allowing cities and other communities to issue their own currency (eg Berkshares, Bristol Pounds etc.), give it out as a UBI and then tax it back to remove money from circulation (fiscal policy). The fiscal policy can then be used to mitigate negative externalities like pollution etc. So the monetary and fiscal policies are managed by the people. The businesses are getting money from people spending money on things they actually want, rather thank bank underwriters trying to guess whether there will be a lot of demand for the business’s services 5 years later. Crypto has been captured by ponzi schemes and nonsense. But the real value is in communities. Real goods and services by people accepting the local currency is what backs the local currency. The other stuff (“redeemable for gold, etc.”) are just mostly fictions to get a critical mass of adoption in a community.
- Nursie 4y ago
  > As of 2020, the Federal Reserve lowered reserve requirements to ZERO Because it's no longer the favoured mechanism. Large banks in the US still have capitalisation requirements, and there are various other measures, they're just no longer required to keep a certain percentage specifically in a federal reserve account. https://www.federalreserve.gov/supervisionreg/large-bank-capital-requirements.htm https://www.federalreserve.gov/supervisionreg/large-bank-cap...
  - EGreg 4y ago
cmeacham98 4y ago
This article is bad, and contains several falsehoods, but the worst one is about fractional reserve banking: > banks are able to issue out far more digital chips than they have in a state money ‘behind the counter’ > Imagine a person arriving a casino with no money but requesting chips nevertheless - this is pretty much what happens when someone approaches a bank and asks for a loan. This is just completely wrong - banks only loan out money they have. If you go to a bank and get a loan the bank didn't just edit a database entry - they had that money. Banks loaning out money they don't have is extremely illegal. The reason that banks ""create"" money is because when you loan money it ""duplicates"" it. You don't have to go through a bank to see this in action: Alice loans Bob $20 and then Bob goes and loans $20 to Charlie. The world now has $40 "more" in it, and remains that way until the loan is settled. Banks just do this process with your money and pay you interest for the privilege. This is the reason that banks are sometimes required to keep some percentage of their money in reserve (and thus where the name fractional reserve banking comes from), because otherwise the same money could be loaned out forever and the maximum money supply would be infinite. ======= EDIT: Because everybody seems to be ready to link the same Bank of England paper. Yes, this is an simplified and slightly incorrect model of how it works in real life. In reality, this process is asynchronous: the government gives banks permission to loan out the money _now_ and figure out the backing cash later. They don't have to keep track of who's money is loaned out to who as long as the balance sheet works out at the end of the day, and some percentage of assets are kept in liquid form (I believe it's something like 4%-5% in the US). In the end, the point is the same: the government controls the creation of money, even if banks are the agents by which they do so. The analogy the author has of a casino just going into debt by creating chips out of thin air is inaccurate and extremely misleading. If everybody were to claim their chips, the casino would go bankrupt. If everybody were to simultaneously pay off their loans and withdraw their money from the banks, the banks would be fine (and have the interest payments they collected left over).
- lifty 4y ago
  Loan creation doesn’t work like that for many many years. These days banks don’t even have a reserve requirement. They just create the money and balance the books later. Edit: to make my point clearer, banks don’t need your deposits to create new money. They just do.
miohtama 4y ago
Regading CBDCs: There was a Bitcoin hostile article published by European Central Bank today. I was wondering why ECB even bothers to write about Bitcoin. Turned out, the author is a fan of CBDCs and taking cash away so that ECB could enforce negative interest rates. > For example, Dyson and Hodgson (2016) argue that “if digital cash is used to completely replace physical cash, this could allow interest rates to be pushed below the zero-lower bound.” Rogoff (2016) develops this argument in detail. By allowing to overcome the zero-lower bound (“ZLB”) and therefore freeing negative interest rate policies (“NIRP”) of its current constraints, a world with only digital central bank money would allow for – according to this view - strong monetary stimulus in a sharp recession and/or financial crisis. This could not only avoid recession, unemployment, and/or deflation but also the need to take recourse to non-standard monetary policy measures which have more negative side effects than NIRP. Opponents of NIRP will obviously dislike this argument in favor of CBDC, and will thus see CBDC potentially as an instrument to overcome previous limitations of “financial repression” and “expropriation” of the saver. > In sum: it seems that the remuneration of CBDC is per se neither necessary to clear a market, nor to control inflation, in analogy with the case of banknotes, which also cause none of these issues8. However, still, the ability to remunerate CBDC, in contrast to banknotes, is a privilege that has a number of advantages. It allows shifting the interest rate on CBDC in principle in parallel to monetary policy rates, such as to avoid that the relative attractiveness of CBDC relative to market- and central bank policy rates depends on the absolute level of interest rates, as it is the case for banknotes. Indeed, the fact that the remuneration of banknotes stands at zero regardless of whether short-term risk-free rates are at 10% or at -0.5% (as currently in the euro area) may be perceived as an anomaly, which becomes increasingly problematic when the zero lower bound is being approached or passed. Moreover, a negative remuneration of CBDC also allows addressing the possible danger of a run into CBDC in case of a systemic banking crisis (as also noted by Kumhof and Noone). As shown in section 4, in the 2008 banking-, and 2011/12 euro area debt crises, a run into banknotes played only a rather minor role, relative to the run from perceived weak to perceived strong banks – despite the fact that the remuneration of banknotes remained at zero, and that the level of short term risk free rates quickly approached this level after the Lehman default, reducing the opportunity costs of holding banknotes. Nevertheless, since a run into CBDC would be easier, it would be recomforting to have as extra tool the ability to impose negative rates on CBDC. This kind of money tinkering sits at the opposite of the political spectrum of Bitcoin, regardless if you like Bitcoin or European Central Bank. https://deliverypdf.ssrn.com/delivery.php?ID=779068125074119107121086087000106028034002008002053038105115014071104010117125118124043110106115033100010094101127117121100070123000008015072068094118124088098084034079016009091073123109087026091015066127016024078126067092108068071067070006008067109&EXT=pdf&INDEX=TRUE https://deliverypdf.ssrn.com/delivery.php?ID=779068125074119...
redeyedtreefrog 4y ago
The vast majority of the money supply created by central banks is digitally created. I am entirely at a loss as to why this supposed introduction to how money works consistently implies money created by the state approximately equals cash, and that cash is particularly special. That's not how it works. And because that's not how it works, a cashless society is nothing like as radical change as the article implies. Cash is already of only limited importance.
DavidPiper 4y ago
This has generated surprisingly divisive interest for a blog about how money works. Maybe it was the reference to stablecoins. Highly recommend watching https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0 before reading this article if you're coming in without much context.
cortesoft 4y ago
> Digital chips for borrowers: they issue Layer 2 chips to borrowers, in exchange for a loan agreement in which the customer promises to return a larger amount of Layer 1 money to them in future than what the chips promise to them now (in a sense, the bank ‘buys’ a higher-value long-term promise by issuing lower-value short-term promises, but exposes itself to risk in the process). This is not true. I pay layer 2 chips to pay off my mortgage. I am not sending cash to the bank, they transfer layer 2 chips from my bank account every month. Not only that, but the central bank never touches layer 1 money either. They also just transfer layer 2 money into banks.
- globalreset 4y ago
  When you pay off your mortgage with L2 chips, your bank settles in lower layer with other banks, so they do actually get L1 chips. Not actually with "cash" but with chips tracked by Fed account for banks. (It's really chips all the way down). Similarly when you are sending your L2 chips thank bank created for when they granted you your morgage - from your bank to other places, they will want to settle L1 chips as well. The bank will use the value of of your debt to settle it (either sell the loan to someone, including FED or use as a collateral or whatever).
anonymouse008 4y ago
Ok, now explain bad debt expense in this model? And the implication on taxes? How about the secondary market for debts and bankruptcy proceedings? And then capitalizing expenses? This post just says the same thing everyone understands in the simple model with abstractions based on crypto that attempts to explain group behaviors. How someone goes about reading the incentives and behaviors with the simple model does not mean the model is wrong - multiple choice tests allow people to be right for different reasons. Edit: and I forgot the softball, the FDIC insurance explains an insane amount about the inherent risks of the system. If you want to know the real “creation of money” if that number ever goes up, you’ll see some wild things.
mozey 4y ago
> In reality, a cashless society is a type of enclosure, in which the only form of money in society becomes digital bank chips (a bit like being stuck in a network of casinos where you can no longer exit) Quote from an interview with the author: "The State endorse a currency as a mean to pay taxes, but what ultimately gives money its power is the network effect: there is no opt out": https://www.ouishare.net/article/on-the-illusion-of-money-an-interview-with-brett-scott https://www.ouishare.net/article/on-the-illusion-of-money-an... The part about CBDCs is interesting: "The banking sector has been attacking the cash system for decades, but confidence in their Layer 2 chips depends on the public being able to redeem them for state money... In reality, Layer 1 CBDC has existed for decades, but it’s traditionally called ‘reserves’ and is only accessible to banks who use it between themselves" "banks control the Layer 2 system, but see a future in which they might end up sandwiched by competition from a hypothetical Layer 1 CBDC and Layer 3 stablecoin systems (which admittedly plug into them). This is why banks are currently lobbying against CBDC to water it down (e.g. demanding limits upon its use), while demanding that stablecoins be regulated in the same way that banks are" "The CBDC debate is really about whether access to digital state money should be extended to all of us"
- bondarchuk 4y ago
  Ah, that's fantastic, now I finally have an answer to the question: "what's the big deal with CBDC's if almost all money is already digital?"
nyanpasu64 4y ago
I shudder to think of a day where the only way to spend and receive money offline is through banking and financial systems (Layers 2-3), which (likely due to today's KYC laws) inevitably require outing your deadname in order to send and receive goods and services. This is already largely the case for online payments, in bank transfers (which in their current dysfunctional state, not only reveal your legal name to the recipient directly, but require you send your order ID and legal name in an email side channel because the chip-transfer message doesn't carry enough information to tell the recipient what the money is for), and PayPal (PayPal business accounts do not actually hide your account-holder name from the money recipient, as I found out by being doxxed after creating one). I've only found a narrow exception where Privacy.com credit cards allow the use of a pseudonym once you've doxxed yourself to Privacy.com, and the small fraction of people on Citi can use True Name Mastercards to pay (and again not receive money).
- zxcvbn4038 4y ago
  There is an old trick in the US where after you obtain a credit card in your own name you can obtain a companion card with any name at all on it. It will not protect you if you do any nefarious activity, but if you just want to shop or dine without name recognition then it works just fine. I think I was only asked once to provide personal details for the companion card.
quickthrower2 4y ago
The problem with this article is it doesn’t point out that most money is bank deposits already, so taking the cash element away wont make much of a difference to the amount of bank IOU style money. The bigger issues will be people used to not paying tax by using cash (usually working class) will suddenly be a lot poorer which could be a shock. The government may need to mitigate. And the surveillance aspect of it, where the bank system knows every last cent spent by every last citizen.
- ajsnigrutin 4y ago
  There are many many more issues in a cashless society. Imagine a power outage (sadly, we're getting close to regular ones here in europe)... how will you pay for anything if POS terminals don't work? Imagine protests like the ones in china now.. (and not that long ago in canada)... protesting.. hungry? Wanna buy a hotdog or noodles? No cash? Use some digital card/app.. there's a paper trail you were there and your account is locked. Banks wanting to earn a bit more money? Some people spending more money at liquor stores than at fitness stores... that information would be valuable to insurance companies. Want to buy an XXXL buttplug? Now there's a paper trail from a XXXL buttplug store... government changes (your leader doesn't want to use dolars anymore to sell oil, someone organizes a coup,...), and you're being thrown from a rooftop. etc.
  - quickthrower2 4y ago
    Agree with all these. Except power outage. There is nowhere near enough cash in circulation to take over, not the means to easily access it. See: Lebanon. Maybe Lebanon is the poster child for needing a more cashful society! Or using gold (not gold standard)
realcertify 4y ago
Recently I opened an IRA account at Fidelity. I had my 401k with them for more than a decade. Soon after I opened it they locked my account demanding ID and papers proving my residential address. I'm not sure what else they may request, but fact is I can't use my hard earned funds at this moment. I experienced similar locks at a bunch of other websites. It looks to be a norm nowadays to randomly lock accounts. Now if similar things start to happen to bank accounts and retirement funds it's easy to understand that it will ruin people's lifes. Bottom line is - we shouldn't fully rely on electronic money. I will do everything to avoid living in a cashless society.
- selimthegrim 4y ago
  Fidelity had my 403b account listed under the address of some Brazilian guy who worked for Microsoft when I logged in one time. There’s a reason they do that.
- Gordonjcp 4y ago
  > Bottom line is - we shouldn't fully rely on electronic money. I will do everything to avoid living in a cashless society. How exactly do you propose to do that?
dghughes 4y ago
>Remember that a chip is a liability to its issuer. Whoever ends up with those chips can come back to demand cash, so - in the case of a casino - it’s not in their interest to randomly issue huge numbers of chips to customers who don’t actually deposit anything. At the casino where I used to work one Auditor would pore over slot machine reports tracking down single cent tickets. People had stuffed their pockets with tickets when out for a night and then forgot about it. But the auditor had to account for it in case they came back wanting the penny. My mind reeled from the tedium nature of that job.
hoosieree 4y ago
I'm curious what people who've used AliPay in China think about this. From the little I've heard about it (on a podcast interview[1]) it seems like people refuse cash because AliPay is so strongly preferred. How does that fit into the whole "casino chip society" view? [1]: https://corecursive.com/software-world-tour-with-son-luong-ngoc/ https://corecursive.com/software-world-tour-with-son-luong-n...
tsukikage 4y ago
> banks (...) might end up sandwiched by competition from (...) Layer 3 stablecoin systems. This is why banks are currently (...) demanding that stablecoins be regulated in the same way that banks are. ...but earlier: > Thinking of these different layers of money as enforceable ‘chips’ within a legal system helps to highlight that ‘thin air’ is thicker than we may think. ...surely the author themselves here is effectively admitting there are more reasons one might desire regulation and oversight in the crypto space than just stifling competition?

208 points by Gigamouse 4y ago

This is a fantastic post - I'm 100% going to start using the term "Casino-Chip Society" whenever I talk about "cashless" society. There is another reason that cashless society is awful that was not talked about in this article, but I think is just as important - a digital dollar means that you have a dollar where it is impossible to commit crime. While that sounds like a good thing (who wants crime?), it very much stops being a good thing as soon as you bump up with laws that go against your morals. Designing systems with the assumption that we will always have democratic and free government is a horrendous idea, allowing the government to have a complete record and log of every single transaction you ever make, as well as having the ability to stop you using digital money, makes it so easy for fascists.

uoaei 4y ago
> it very much stops being a good thing as soon as you bump up with laws that go against your morals A pretty explicit part of the fascist ideology per se is that laws are merely morals that are written down and enforced. The idea is that people adopt their moral code from the central government who defines how people "should" perceive the world in order to make citizens obedient to the dogma of the state. Willing fascists do everything they can to dissolve any notion of personal choice in the matter, for themselves and for others, and by their very constitution cannot conceive of morals existing outside of a system of authority.
- SQueeeeeL 4y ago
  Wait, so does that mean the "War on Drugs" wasn't making me more free??? The US Government would never do anything fascist so obviously you're wrong.
  - alexb_ 4y ago
    All laws make you less free. Laws exist to restrict freedoms in order to create a better society - what a better society means is the part where political differences come up. Most people can agree on laws existing to prevent harm unto others, but then what does that mean? Answers depend on your values and goals, and are fundamentally what politics are. The point is though, all laws make someone "less free", because the purpose of law is to prohibit.
    - js8 4y ago
      > The point is though, all laws make someone "less free", because the purpose of law is to prohibit. I think you're wrong. Not all laws prohibit. For example, take a law that establishes public libraries. It doesn't prohibit anybody from anything.
      - SQueeeeeL 4y ago
        Nah, all government is bad. Socialism is when the government spends money, freedom is when I get paid $5 an hour and eat trans fats
        alexb_ 4y ago
        When exactly did I say that all government is bad? I personally think it's great the government restricts the right of people to commit murder.
        Spooky23 4y ago
        Why? The market would take care of it. Instead of police, just hire security.
        jacobr1 4y ago
        This is one of the problems with polarization. The legitimate points of one side get grouped in with all the other ridiculous crap. Every law, every program has a cost. Many times this costs are worth it. And there are plenty of times where they aren't, or have unintended side-effects. Pointing out these costs and forcing society to recognize them as explicit decisions and tradeoffs is one of the key benefits of the Right, even if you disagree on where they fall on the balance of net-benefits in the final analysis. TANSTAAFL
- Karellen 4y ago
  What else are laws - even in a democracy - if not "merely morals that are written down and enforced"?
  - aidenn0 4y ago
    I think the difference is that the totality of morality is supposed to come from the state in Fascism. A well functioning society necessarily ought not legally forbid things that I consider immoral, which allows for personal autonomy with regards to ethics.
    - jhbadger 4y ago
      I think that would be better stated as in totalitarianism, the totality of morality is supposed to come from the state. Fascism is only one form of totalitarianism.
  - uoaei 4y ago
    The issue is in the word "merely". Of course the goal of law writ large is to engender "good" conditions in a society by restricting "bad" elements and encouraging "good" ones. In this sense the law has a moral quality. Roughly speaking, "law" is morality as practiced by a state. The difference is in the acknowledgment or ignorance of the laws' congruence with the moralities of the citizens' opinions and preferences those laws are meant to represent. One could say the entire goal of democracy is the messy process of aligning the state's morality with the collective morality of its citizens. Fascism is then comparable to defining a single normative moral position and imposing it on the entire populace unilaterally. In short, the question is: whose morals?
  - OkayPhysicist 4y ago
    Laws and morals are both normative claims about the actions of individuals, but while morals are concerned with individual actions, laws must be concerned about societal-level ramifications of not just the actions, but also the enforcement of law. For example, most people would agree that adultry is bad and immoral. But as a society we've decided that its immorality isn't sufficient to overcome the ills of being punishable by the state, and thus it ought not to be illegal. Stealing to feed your starving family is moral, but we don't want to support theft in general so its illegal. In a free society, one must recognize that legality ought loosely follow morality, with the ideal being that illegal actions are the strict subset of immoral actions which cause greater ill than the enforcement of their illegality. In the absence of an oracle into objective good and evil, a society must err on the side of not making things illegal which could potentially either be not worse than the ill of their enforcement, or not be immoral at all. The all-to-common trap is to confuse the direction of influence: morality should influence legality, never the other way around. Allowing legality to influence one's perception of morality is simply surrendering your autonomy to those who greatest influence the law, and is a sure-fire path to authoritarianism.
akira2501 4y ago
> a digital dollar means that you have a dollar where it is impossible to commit crime Maybe. You'll probably just be able to convert it to some other form of value at a loss and then continue from there. Plenty of governments have envisioned the end of the "black market" only to be shown how utterly impossible that idea is.
- bombcar 4y ago
  That's the thing that wasn't explicit in the article; that each time you "switch layers" you often incur fees - if you're going down or back. You can deposit cash at a bank and get it back, but that's almost an exception. Once you get into layer 3 it is harder and harder to get back to layer 1 or 2 without losing "some value" - gift cards being the most obvious example.
  - uoaei 4y ago
    > You can deposit cash at a bank and get it back, but that's almost an exception. You get back the same cash but you almost certainly don't get back the same value due to inflation.
    - bombcar 4y ago
      True, but that hits you if you just stuff 20s in your mattress (which is why inflation is the most effective flat tax we have).
    - bruce511 4y ago
      >> You get back the same cash No you don't, or at least, no I don't. My bank has fees for depositing cash (more than x times a month), fees for withdrawing cash (even at an atm) and fees for holding my cash (having an account.) Trading in cash is _really_ expensive.
      - senortumnus 4y ago
        This is surprising. You should consider other banks.
knowaveragejoe 4y ago
The history of civil rights progress is characterized by marginally deviant behavior(for the time) slowly becoming more accepted and mainstream. Take LGBT rights or marijuana for example. If you disallow even the slightest level of deviance than you potentially neuter the ability of money to participate in that process.
- deleted 4y ago
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bruce511 4y ago
So let's say I have lots of level 2 money. I go to various banks and trade in the level 2 for level 1. I take my billions of level 1,and stick it in a warehouse. Maybe one day I even set it on fire. What does this mean? Does the fed recognizes the loss, and just print more? Have I in effect just shrunk the economy? My level 2 money is still in the system, its just the paper has vanished. By extension, say every person loses one $10 bill every year, in an unrecoverable (by anyone) way. Presumably that's factored into the money supply? Is changing the paper (as in the UK this year) a way of "cleaning the balance sheet" - effectively preventing some truly monster hoard from suddenly appearing? So many questions...
- galaxyLogic 4y ago
  What I'm wondering is .. when you own stocks of companies it is like having one type of currency, one per company or fund. (right?). Now when the stock-market goes down I lose money. And so do most people who own stocks. Where does that lost money go? Everybody lost a lot in the most recent downturn and (most) nobody gained. We simply have less "value" now. Where did that value go? How could it have just vanished?
  - jack_pp 4y ago
    For the value of a stock to go down people have to sell it. What the people who have not sold lost, the people who have sold gained. Overall the money supply has not changed, money has just moved from holders to sellers
  - bruce511 4y ago
    So that's level 3 value right? It's not money (level 1) or even chips (level 2). So I'd say it's inaccurate to say you lost money. More accurate to say you lost value. When the shares were issued (out of thin air) they had speculative value - they are promises for future dividends (presumably level 2) based on future profits. The stock market acts as a level 2/level 3 swap place, and hence let's you calculate the "current level 2 price" of your level 3 paper. So yes, the value simply got lost. But balance that with the way it simply got created in the first place. And bear in mind that _all_ shares go to 0 in the long run. Ultimately the future arrives and that future value speculation is fully realised.
bombolo 4y ago
> Designing systems with the assumption that we will always have democratic and free government is a horrendous idea I wonder if that's why germans are so against anything that is privacy invading while swedish people are quite happy to have their home address publicly known.
badpun 4y ago
> a digital dollar means that you have a dollar where it is impossible to commit crime. This is overly definitive. For example, in Poland, it's illegal to run a private online poker site and yet there's plenty of operators doing it. They offer digital money transfers via payment processors which specialize in skirting the law, such as Neteller, Payza etc. The Polish state doesn't care enough about its own laws regarding online gambling to clamp down on such practices and so people are happily commiting crimes using the "digital dollar".
- akiselev 4y ago
  The GP phrased that way too much like an allegory from under a rock and not enough like an internet comment. (I think) He means that digital currencies remove plausible deniability. The Polish government can both claim to crack down on gambling to its conservative supporters and at the same time avoid investing too many resources in pointless anti-vice enforcement. The second they have a digital ledger of all transactions in the country, they either have to get real with their conservative supporters who will vote them out or really go after all the people gambling whose bookies will drag them out from their beds. Politics is a balancing act.
- quickthrower2 4y ago
  With better surveillance tech (no cash being an example of this) you can pave the way for future governments to exercise that power in bad ways even if the current one is lenient.
- mymythisisthis 4y ago
  In Canada, casinos are used to wash money, https://www.cp24.com/news/mystery-shoppers-sent-to-ontario-casinos-made-away-with-over-35k-despite-not-having-proof-of-winnings-1.6175095 https://www.cp24.com/news/mystery-shoppers-sent-to-ontario-c... The government makes too much from casinos, and doesn't care.
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jrm4 4y ago

This is so good. I was in another thread suggesting that, even if you hate crypto, it's still valuable to understand and accept the "fiat is all made up" idea, even if it's often badly stated and argued. I have a degree in economics, but I confess I really didn't understand the whole thing until much later in life, when I was able to look at it through the lens of e.g. video game design. Which is to say, there are real consequences and real effects of actions -- but the economy still isn't something like "nature" or "scientific" despite what many would have you believe. It's much more like a designed game who's rules can be tweaked, sometimes arbitrary, etc.

anon291 4y ago
This post said nothing about fiat other than that people trust it. Fiat is not the L2 in this system. It is the L1 state issued currency. Bitcoin is analogous to fiat in the crypto world and the exchanges/custodial wallets the L2
- igorkraw 4y ago
  But in the real world, bitcoin and indeed all of crypto is a/are token/s without an army behind it or any form of legal promises except those conferred to them by $L1. Unless you want to go to El Salvador or that one other nation that made it legal tender, Bitcoin is L2 (and a shitty one at that looking at stability, fees and speed)
  - TreeRingCounter 4y ago
    Bitcoin doesn't need petrodollar warfare like the dollar does.
    - ben_w 4y ago
      It has as much need for it as the dollar, which is either "both need it" if you're focusing on the warfare part and using "petrodollar" as rhetorical emphasis, or "neither needs it" if you're focusing on literally the support of petroleum and using "warfare" as rhetorical emphasis. "Both" is because guns beat bits. Or, to put it another way, if the USA had used Bitcoin instead of dollars in 1960, the Soviet Union would've been just as much a threat, and similarly the forced nationalisation in Cuba after the revolution would've happened no matter who recorded what on any blockchain. "Neither" is because petroleum is just one of the major energy sources of the last century, vital for the industrial strength of the US economy and its capacity to actually make things worth buying (in addition to uselessly trinkets), but not the power source of the next century.

guelo 4y ago

I think the article would have been better if it used standard money supply definitions M0, M1, M2, and M3 instead of the "Layer" terminology. That way the reader would be able to carry that knowledge to other conversations. But an advantage of his terminology is that it keeps the layers separate while the standard definitions are nested, so M1 includes M0, M2 includes M1, M3 includes M2. With his layered model he is able to highlight some of the power struggles more easily.

teddyh 4y ago

I also liked this JWZ blog post: (https://www.jwz.org/blog/2016/08/like-regular-money-but-more-fun/ https://www.jwz.org/blog/2016/08/like-regular-money-but-more...) HN link: https://kilobytely.com/sh6vk9ync1qf4tzod2rg5uj8xmb0ti7wlazod2rg5u6vk9ync1qf4ti7pe3sh6vk9ync1q9ync1qf4ti7wlauj8xmb0pe3sh6vmb0pe3sh6vk9ynlazod2rg5uj8xmnc1qf4ti7wlazoi7wlazod2rg5ujqf4ti7wlazod2rync1qf4ti7wlaz8xmb0pe3sh6vk97wlazod2rg5uj8h6vk9ync1qf4tie3sh6vk9ync1qfvk9ync1qf4ti7w3sh6vk9ync1qf4lazod2rg5uj8xmxmb0pe3sh6vk9ype3sh6vk9ync1qti7wlazod2rg5uti7wlazod2rg5ud2rg5uj8xmb0pexmb0pe3sh6vk9y4ti7wlazod2rg59ync1qf4ti7wlanc1qf4ti7wlazomb0pe3sh6vk9yne3sh6vk9ync1qfsh6vk9ync1qf4t1qf4ti7wlazod2g5uj8xmb0pe3shg5uj8xmb0pe3shh6vk9ync1qf4tiqf4ti7wlazod2r9ync1qf4ti7wlarg5uj8xmb0pe3swlazod2rg5uj8x6vk9ync1qf4ti7sh6vk9ync1qf4t8xmb0pe3sh6vk9zod2rg5uj8xmb0azod2rg5uj8xmb5uj8xmb0pe3sh6ync1qf4ti7wlazod2rg5uj8xmb0pzod2rg5uj8xmb0xmb0pe3sh6vk9yazod2rg5uj8xmbwlazod2rg5uj8xwlazod2rg5uj8xlazod2rg5uj8xm3sh6vk9ync1qf45uj8xmb0pe3sh6zod2rg5uj8xmb0lazod2rg5uj8xmk9ync1qf4ti7wlf4ti7wlazod2rgj8xmb0pe3sh6vk8xmb0pe3sh6vk94ti7wlazod2rg5od2rg5uj8xmb0pi7wlazod2rg5ujb0pe3sh6vk9ync4ti7wlazod2rg50pe3sh6vk9ync1nc1qf4ti7wlazod2rg5uj8xmb0pelazod2rg5uj8xmd2rg5uj8xmb0pec1qf4ti7wlazodlazod2rg5uj8xmh6vk9ync1qf4tic1qf4ti7wlazodazod2rg5uj8xmbazod2rg5uj8xmb9ync1qf4ti7wlavk9ync1qf4ti7w8xmb0pe3sh6vk9pe3sh6vk9ync1qb0pe3sh6vk9yncwlazod2rg5uj8xzod2rg5uj8xmb04ti7wlazod2rg5d2rg5uj8xmb0peqf4ti7wlazod2rf4ti7wlazod2rgi7wlazod2rg5uj6vk9ync1qf4ti7lazod2rg5uj8xm0pe3sh6vk9ync14ti7wlazod2rg58xmb0pe3sh6vk9lazod2rg5uj8xm2rg5uj8xmb0pe3vk9ync1qf4ti7wg5uj8xmb0pe3shazod2rg5uj8xmb0pe3sh6vk9ync1 https://kilobytely.com/sh6vk9ync1qf4tzod2rg5uj8xmb0ti7wlazod...

jimmaswell 4y ago

So I'm paid in casino chips, pay my mortgage and credit cards with casino chips, pay my taxes with casino chips, and only ever use real money at the laundromat. Seems like the chips are more "real" and relevant at this point than the pieces of paper with no intrinsic value.

IntFee588 4y ago
That's not what he's saying. The "digital money" can be real if it is put into circulation by the central bank, by buying assets. There is no inherent connection to paper currency. You may feel like you're above this, but this excess leverage in the economy affects everyone who has a mortgage, works a job, or participates in the traditional economy in any way. For instance, businesses regularly draw on their credit facilities to make pay, and even well-run businesses usually hold debt. The artificially set price of these "chips" has a massive effect on all sectors.
- Semaphor 4y ago
  But they are still the same, just more convenient. The state gives the money value, be it paper or digital. They could even create a third currency, literal plastic chips, and they’d also be the same. The articles goes from condescending to their conclusion, but they just fake explaining anything, they don’t actually.

teddyh 4y ago

The funny thing is, what he calls “Layer 1 cash” is not the lowest layer. Most cash currencies were issued as tokens which could themselves be reimbursed for gold or silver by the issuing state or bank. The current level of cash (which he tries to defend) is already one level removed from what was originally valued. One could see where gold bugs and silverites get their thinking from. But, one could argue, if most people really think there’s only one type of money, isn’t that by then by definition, true? I.e. if other people value a “layer 2 digital chip” as much as “layer 1 cash”, aren’t both worth the same to me, since I can get the same worth from them both? And, therefore, why should we care anything about any shift from layer 1 to layer 2, since the shift from layer 0 to layer 1 seems to not be a problem now? This is a limited view, and is true solely if you look only at the two forms’ notional “value”. Hovever, the differences between the two lie instead in the technical limitations in how they can be used. If layer 1 cash cannot be used by, say, online retailers, or in certain shops, that form might have less value for me, if I want to buy something online or in those shops. On the other hand, if layer 2 digital chips cannot be used without the bank (and state) getting and keeping a permanent log of all my transactions, and also makes it impossible to send money to what either the government or the credit card companies deem to be unsuitable destinations, then I might value that form less. It all depends on what you, yourself, value, or (by extension), what freedoms and/or conveniences you want society as a whole to have. He chooses to defend “the balance of power” between the two. We must all make our own choices here, and remember that all our actions will affect the balance.

Nursie 4y ago
I'm not sure why you're being downvoted here, this is all good sense - if "Layer 2" casino chips are actually more useful to me, and interoperate seemlessly with "layer 1", there seems no particular reason to care about the power struggle the author frames, or even paint it in terms of a struggle. AFAICT there is no war between the Bank of England and the banks in the UK over who gets to issue the money, no conflict, just the system running as it is designed with various participants in their niche. The author likes to paint proponents of cashless societies as naive, but to me it looks like they have decided there's a moral component and a battle where it seems really there is none, or at least it is a political/idealogical viewpoint they are superimposing on the situation.

EGreg 4y ago

As of 2020, the Federal Reserve lowered reserve requirements to ZERO. And in Canada too. That means banks can now issue money without being required to back it by L1 money. Those trillions “printed” and given out to people as PPP loans were originated by banks. But the loan forgiveness comes from where? Who pays the liabilities these banks have to each other? Technically, the banks can simply cancel liabilities they have to each other. If Bank A issues a loan or credit card and it is redeemed for credits in Bank B, while Bank B does the same for bank A, then the banks can simply cancel out their debt to each other when they settle their balances periodically using the Automated Clearing House (ACH) system that is also run by the Federal Reserve. So banks can issue a ton of money to spur economic activity, and then cancel the debts to each other and take it out of circulation. I started https://intercoin.org https://intercoin.org to making an alternative way to the banking system, allowing cities and other communities to issue their own currency (eg Berkshares, Bristol Pounds etc.), give it out as a UBI and then tax it back to remove money from circulation (fiscal policy). The fiscal policy can then be used to mitigate negative externalities like pollution etc. So the monetary and fiscal policies are managed by the people. The businesses are getting money from people spending money on things they actually want, rather thank bank underwriters trying to guess whether there will be a lot of demand for the business’s services 5 years later. Crypto has been captured by ponzi schemes and nonsense. But the real value is in communities. Real goods and services by people accepting the local currency is what backs the local currency. The other stuff (“redeemable for gold, etc.”) are just mostly fictions to get a critical mass of adoption in a community.

Nursie 4y ago
> As of 2020, the Federal Reserve lowered reserve requirements to ZERO Because it's no longer the favoured mechanism. Large banks in the US still have capitalisation requirements, and there are various other measures, they're just no longer required to keep a certain percentage specifically in a federal reserve account. https://www.federalreserve.gov/supervisionreg/large-bank-capital-requirements.htm https://www.federalreserve.gov/supervisionreg/large-bank-cap...
- EGreg 4y ago

cmeacham98 4y ago

This article is bad, and contains several falsehoods, but the worst one is about fractional reserve banking: > banks are able to issue out far more digital chips than they have in a state money ‘behind the counter’ > Imagine a person arriving a casino with no money but requesting chips nevertheless - this is pretty much what happens when someone approaches a bank and asks for a loan. This is just completely wrong - banks only loan out money they have. If you go to a bank and get a loan the bank didn't just edit a database entry - they had that money. Banks loaning out money they don't have is extremely illegal. The reason that banks ""create"" money is because when you loan money it ""duplicates"" it. You don't have to go through a bank to see this in action: Alice loans Bob $20 and then Bob goes and loans $20 to Charlie. The world now has $40 "more" in it, and remains that way until the loan is settled. Banks just do this process with your money and pay you interest for the privilege. This is the reason that banks are sometimes required to keep some percentage of their money in reserve (and thus where the name fractional reserve banking comes from), because otherwise the same money could be loaned out forever and the maximum money supply would be infinite. ======= EDIT: Because everybody seems to be ready to link the same Bank of England paper. Yes, this is an simplified and slightly incorrect model of how it works in real life. In reality, this process is asynchronous: the government gives banks permission to loan out the money _now_ and figure out the backing cash later. They don't have to keep track of who's money is loaned out to who as long as the balance sheet works out at the end of the day, and some percentage of assets are kept in liquid form (I believe it's something like 4%-5% in the US). In the end, the point is the same: the government controls the creation of money, even if banks are the agents by which they do so. The analogy the author has of a casino just going into debt by creating chips out of thin air is inaccurate and extremely misleading. If everybody were to claim their chips, the casino would go bankrupt. If everybody were to simultaneously pay off their loans and withdraw their money from the banks, the banks would be fine (and have the interest payments they collected left over).

lifty 4y ago
Loan creation doesn’t work like that for many many years. These days banks don’t even have a reserve requirement. They just create the money and balance the books later. Edit: to make my point clearer, banks don’t need your deposits to create new money. They just do.

miohtama 4y ago

Regading CBDCs: There was a Bitcoin hostile article published by European Central Bank today. I was wondering why ECB even bothers to write about Bitcoin. Turned out, the author is a fan of CBDCs and taking cash away so that ECB could enforce negative interest rates. > For example, Dyson and Hodgson (2016) argue that “if digital cash is used to completely replace physical cash, this could allow interest rates to be pushed below the zero-lower bound.” Rogoff (2016) develops this argument in detail. By allowing to overcome the zero-lower bound (“ZLB”) and therefore freeing negative interest rate policies (“NIRP”) of its current constraints, a world with only digital central bank money would allow for – according to this view - strong monetary stimulus in a sharp recession and/or financial crisis. This could not only avoid recession, unemployment, and/or deflation but also the need to take recourse to non-standard monetary policy measures which have more negative side effects than NIRP. Opponents of NIRP will obviously dislike this argument in favor of CBDC, and will thus see CBDC potentially as an instrument to overcome previous limitations of “financial repression” and “expropriation” of the saver. > In sum: it seems that the remuneration of CBDC is per se neither necessary to clear a market, nor to control inflation, in analogy with the case of banknotes, which also cause none of these issues8. However, still, the ability to remunerate CBDC, in contrast to banknotes, is a privilege that has a number of advantages. It allows shifting the interest rate on CBDC in principle in parallel to monetary policy rates, such as to avoid that the relative attractiveness of CBDC relative to market- and central bank policy rates depends on the absolute level of interest rates, as it is the case for banknotes. Indeed, the fact that the remuneration of banknotes stands at zero regardless of whether short-term risk-free rates are at 10% or at -0.5% (as currently in the euro area) may be perceived as an anomaly, which becomes increasingly problematic when the zero lower bound is being approached or passed. Moreover, a negative remuneration of CBDC also allows addressing the possible danger of a run into CBDC in case of a systemic banking crisis (as also noted by Kumhof and Noone). As shown in section 4, in the 2008 banking-, and 2011/12 euro area debt crises, a run into banknotes played only a rather minor role, relative to the run from perceived weak to perceived strong banks – despite the fact that the remuneration of banknotes remained at zero, and that the level of short term risk free rates quickly approached this level after the Lehman default, reducing the opportunity costs of holding banknotes. Nevertheless, since a run into CBDC would be easier, it would be recomforting to have as extra tool the ability to impose negative rates on CBDC. This kind of money tinkering sits at the opposite of the political spectrum of Bitcoin, regardless if you like Bitcoin or European Central Bank. https://deliverypdf.ssrn.com/delivery.php?ID=779068125074119107121086087000106028034002008002053038105115014071104010117125118124043110106115033100010094101127117121100070123000008015072068094118124088098084034079016009091073123109087026091015066127016024078126067092108068071067070006008067109&EXT=pdf&INDEX=TRUE https://deliverypdf.ssrn.com/delivery.php?ID=779068125074119...

redeyedtreefrog 4y ago

The vast majority of the money supply created by central banks is digitally created. I am entirely at a loss as to why this supposed introduction to how money works consistently implies money created by the state approximately equals cash, and that cash is particularly special. That's not how it works. And because that's not how it works, a cashless society is nothing like as radical change as the article implies. Cash is already of only limited importance.

DavidPiper 4y ago

This has generated surprisingly divisive interest for a blog about how money works. Maybe it was the reference to stablecoins. Highly recommend watching https://www.youtube.com/watch?v=PHe0bXAIuk0 https://www.youtube.com/watch?v=PHe0bXAIuk0 before reading this article if you're coming in without much context.

cortesoft 4y ago

> Digital chips for borrowers: they issue Layer 2 chips to borrowers, in exchange for a loan agreement in which the customer promises to return a larger amount of Layer 1 money to them in future than what the chips promise to them now (in a sense, the bank ‘buys’ a higher-value long-term promise by issuing lower-value short-term promises, but exposes itself to risk in the process). This is not true. I pay layer 2 chips to pay off my mortgage. I am not sending cash to the bank, they transfer layer 2 chips from my bank account every month. Not only that, but the central bank never touches layer 1 money either. They also just transfer layer 2 money into banks.

globalreset 4y ago
When you pay off your mortgage with L2 chips, your bank settles in lower layer with other banks, so they do actually get L1 chips. Not actually with "cash" but with chips tracked by Fed account for banks. (It's really chips all the way down). Similarly when you are sending your L2 chips thank bank created for when they granted you your morgage - from your bank to other places, they will want to settle L1 chips as well. The bank will use the value of of your debt to settle it (either sell the loan to someone, including FED or use as a collateral or whatever).

anonymouse008 4y ago

Ok, now explain bad debt expense in this model? And the implication on taxes? How about the secondary market for debts and bankruptcy proceedings? And then capitalizing expenses? This post just says the same thing everyone understands in the simple model with abstractions based on crypto that attempts to explain group behaviors. How someone goes about reading the incentives and behaviors with the simple model does not mean the model is wrong - multiple choice tests allow people to be right for different reasons. Edit: and I forgot the softball, the FDIC insurance explains an insane amount about the inherent risks of the system. If you want to know the real “creation of money” if that number ever goes up, you’ll see some wild things.

mozey 4y ago

> In reality, a cashless society is a type of enclosure, in which the only form of money in society becomes digital bank chips (a bit like being stuck in a network of casinos where you can no longer exit) Quote from an interview with the author: "The State endorse a currency as a mean to pay taxes, but what ultimately gives money its power is the network effect: there is no opt out": https://www.ouishare.net/article/on-the-illusion-of-money-an-interview-with-brett-scott https://www.ouishare.net/article/on-the-illusion-of-money-an... The part about CBDCs is interesting: "The banking sector has been attacking the cash system for decades, but confidence in their Layer 2 chips depends on the public being able to redeem them for state money... In reality, Layer 1 CBDC has existed for decades, but it’s traditionally called ‘reserves’ and is only accessible to banks who use it between themselves" "banks control the Layer 2 system, but see a future in which they might end up sandwiched by competition from a hypothetical Layer 1 CBDC and Layer 3 stablecoin systems (which admittedly plug into them). This is why banks are currently lobbying against CBDC to water it down (e.g. demanding limits upon its use), while demanding that stablecoins be regulated in the same way that banks are" "The CBDC debate is really about whether access to digital state money should be extended to all of us"

bondarchuk 4y ago
Ah, that's fantastic, now I finally have an answer to the question: "what's the big deal with CBDC's if almost all money is already digital?"

nyanpasu64 4y ago

I shudder to think of a day where the only way to spend and receive money offline is through banking and financial systems (Layers 2-3), which (likely due to today's KYC laws) inevitably require outing your deadname in order to send and receive goods and services. This is already largely the case for online payments, in bank transfers (which in their current dysfunctional state, not only reveal your legal name to the recipient directly, but require you send your order ID and legal name in an email side channel because the chip-transfer message doesn't carry enough information to tell the recipient what the money is for), and PayPal (PayPal business accounts do not actually hide your account-holder name from the money recipient, as I found out by being doxxed after creating one). I've only found a narrow exception where Privacy.com credit cards allow the use of a pseudonym once you've doxxed yourself to Privacy.com, and the small fraction of people on Citi can use True Name Mastercards to pay (and again not receive money).

zxcvbn4038 4y ago
There is an old trick in the US where after you obtain a credit card in your own name you can obtain a companion card with any name at all on it. It will not protect you if you do any nefarious activity, but if you just want to shop or dine without name recognition then it works just fine. I think I was only asked once to provide personal details for the companion card.

quickthrower2 4y ago

The problem with this article is it doesn’t point out that most money is bank deposits already, so taking the cash element away wont make much of a difference to the amount of bank IOU style money. The bigger issues will be people used to not paying tax by using cash (usually working class) will suddenly be a lot poorer which could be a shock. The government may need to mitigate. And the surveillance aspect of it, where the bank system knows every last cent spent by every last citizen.

ajsnigrutin 4y ago
There are many many more issues in a cashless society. Imagine a power outage (sadly, we're getting close to regular ones here in europe)... how will you pay for anything if POS terminals don't work? Imagine protests like the ones in china now.. (and not that long ago in canada)... protesting.. hungry? Wanna buy a hotdog or noodles? No cash? Use some digital card/app.. there's a paper trail you were there and your account is locked. Banks wanting to earn a bit more money? Some people spending more money at liquor stores than at fitness stores... that information would be valuable to insurance companies. Want to buy an XXXL buttplug? Now there's a paper trail from a XXXL buttplug store... government changes (your leader doesn't want to use dolars anymore to sell oil, someone organizes a coup,...), and you're being thrown from a rooftop. etc.
- quickthrower2 4y ago
  Agree with all these. Except power outage. There is nowhere near enough cash in circulation to take over, not the means to easily access it. See: Lebanon. Maybe Lebanon is the poster child for needing a more cashful society! Or using gold (not gold standard)

realcertify 4y ago

Recently I opened an IRA account at Fidelity. I had my 401k with them for more than a decade. Soon after I opened it they locked my account demanding ID and papers proving my residential address. I'm not sure what else they may request, but fact is I can't use my hard earned funds at this moment. I experienced similar locks at a bunch of other websites. It looks to be a norm nowadays to randomly lock accounts. Now if similar things start to happen to bank accounts and retirement funds it's easy to understand that it will ruin people's lifes. Bottom line is - we shouldn't fully rely on electronic money. I will do everything to avoid living in a cashless society.

selimthegrim 4y ago
Fidelity had my 403b account listed under the address of some Brazilian guy who worked for Microsoft when I logged in one time. There’s a reason they do that.
Gordonjcp 4y ago
> Bottom line is - we shouldn't fully rely on electronic money. I will do everything to avoid living in a cashless society. How exactly do you propose to do that?

dghughes 4y ago

>Remember that a chip is a liability to its issuer. Whoever ends up with those chips can come back to demand cash, so - in the case of a casino - it’s not in their interest to randomly issue huge numbers of chips to customers who don’t actually deposit anything. At the casino where I used to work one Auditor would pore over slot machine reports tracking down single cent tickets. People had stuffed their pockets with tickets when out for a night and then forgot about it. But the auditor had to account for it in case they came back wanting the penny. My mind reeled from the tedium nature of that job.

hoosieree 4y ago

I'm curious what people who've used AliPay in China think about this. From the little I've heard about it (on a podcast interview[1]) it seems like people refuse cash because AliPay is so strongly preferred. How does that fit into the whole "casino chip society" view? [1]: https://corecursive.com/software-world-tour-with-son-luong-ngoc/ https://corecursive.com/software-world-tour-with-son-luong-n...

tsukikage 4y ago

> banks (...) might end up sandwiched by competition from (...) Layer 3 stablecoin systems. This is why banks are currently (...) demanding that stablecoins be regulated in the same way that banks are. ...but earlier: > Thinking of these different layers of money as enforceable ‘chips’ within a legal system helps to highlight that ‘thin air’ is thicker than we may think. ...surely the author themselves here is effectively admitting there are more reasons one might desire regulation and oversight in the crypto space than just stifling competition?