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I've never understood the complaint. Once upon a time the central bank would load up trains and armoured trucks with hard currency that they would send to the b
by awesome_dude 4y ago
I've never understood the complaint. Once upon a time the central bank would load up trains and armoured trucks with hard currency that they would send to the bank. The bank would then loan that out for stuff (houses, cars, whatever).
The banks realised pretty early on that they could loan out more than they had in physical cash because people didn't need the currency they needed the bank cheque.
At the end of the day the banks would reconcile with one another and the central banks.
Now, because there's even less need for hard currency in our economies, the central banks can (effectively) email to banks how much that they can have to use for loans.
Accounting rules limit the banks on how much they can loan out.
Nothing has changed from when the hard currency was shipped around countries, except that it's done with a telephone.
- JumpCrisscross 4y ago> Once upon a time the central bank would load up trains and armoured trucks with hard currency that they would send to the bank Free banking precedes central banking.
- awesome_dude 4y agoLots of things precede central banking - that doesn't change how the system now is still essentially the same as when hard currency was shipped out and about
- JumpCrisscross 4y ago> when hard currency was shipped out and about When was this? When Caesar borrowed to finance his civil war, do you think he physically collected talents?
- eru 4y agoAnd crucially: what used to be called 'free banking' in 19th century America wasn't really 'free banking' like they practiced in more laissez faire places like Scotland or Canada.
- JumpCrisscross 4y ago> what used to be called 'free banking' in 19th century America wasn't really 'free banking' like they practiced in more laissez faire places like Scotland or Canada Agreed. Point is, banks created money willy nilly from the start. This was problematic when growth was zero. It was catastrophic when growth was positive. Central banks were invented to regulate this process. Not the other way.
- simple-thoughts 4y agoI’d be curious about the history of the creation of central banks - do you have a source for this? My intuition would be that central banks were developed as asset bubbles became so large that the state became involved - and are designed to maximize state control over assets.
- JumpCrisscross 4y ago> curious about the history of the creation of central banks - do you have a source for this Your canonical source is Lombard Street [1]. Central banking is a new concept. For most of human history, the game was zero sum. Fixed-supply money worked, which made the complexity of central banking superfluous. It's only in recent centuries that central banks made sense. [1] https://www.gutenberg.org/ebooks/4359 https://www.gutenberg.org/ebooks/4359
- eru 4y agoI second Lombard Street! However, I'm not sure about your fixed-supply money. Credit and debit have been around for ages, probably longer than money. So in eg for a long time most of the economy didn't use money. It was around the time when the Fuggers came to power that money came to dominate the economy. But around that time (or not much later), bank notes and fractional reserve banking also already became really popular. And those are decidedly not in fixed supply. https://en.wikipedia.org/wiki/Fugger_family https://en.wikipedia.org/wiki/Fugger_family