4 ms·

The USD has never been 1-1 backed. Still seems to work just fine.

by tamrix 4y ago

jacquesm 4y ago
That's because a very large number of people believe in the government they elected and an even larger number of people believe in the US economy and its international trades. If not for that the US dollar would evaporate but as long as all of these people believe in it and use it as the reserve currency for the world the US dollar has nothing to fear. It may fluctuate but you can't do a 'bank run' on the USD. You can do all of the usual forex tricks (including shorting the USD) depending on how much your own belief is at odds with a counterparty that holds a (slightly) different belief. George Soros famously made a fortune (a cool billion, which was a lot of money in the day) doing just that with the British Pound. Individual banks may go under, but they all use the same underlying currencies. Binance has a similar problem (but different in many important respects). The number of people that 'believe' in Binance is a lot smaller and if enough of those people want their money (for instance USD!) back then Binance had better cough them up or they'll go bust. If you don't have a deposit there you are likely either a neutral party or you are already liquid (in that case: good only). If you do have a deposit there and you're willing to let them hold on to it then you are betting that they will stay in business. I don't know about your financial situation but if you can't afford to lose your money then you may want to update your status bits on this news, a $2B outflow in a short period of time is not something a company like Binance can sustain indefinitely, where 'indefinitely' is something like '30 days'. It will be interesting to watch this play out and to see if they manage to hold the fort. Personally I would be highly surprised if they can sustain a drawn out run. But if they somehow can they'll be attracting a lot of business.
CSMastermind 4y ago
The US dollar is backed by the monopoly of force the United States government maintains primarily within its own borders and without as well. The government requires you pay taxes in USD and will lock you in a cage by force if you do not. It requires that you accept USD as valid for commerce and again will lock you in a cage by force if you do not. If you attempt to counterfeit the currency, again locked in a cage by force. The USD is as strong as the government's monopoly on force. Crypto currency is backed by either nothing ("people faith" waves hands in a rainbow gesture) or some dude named Dan in Ohio or whatever.
Gigachad 4y ago
The difference is that no one actually believes in bitcoin. They all plan to cash out in to USD later.
meepmorp 4y ago
> The USD has never been 1-1 backed. Still seems to work just fine. Others have mentioned the problems with this statement, but I'd like point out that it's also literally untrue. The coinage act of 1792 created the US dollar: > Dollars or Units - each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.

The USD has never been 1-1 backed. Still seems to work just fine.

by tamrix 4y ago

The USD has never been 1-1 backed. Still seems to work just fine.

That's because a very large number of people believe in the government they elected and an even larger number of people believe in the US economy and its international trades. If not for that the US dollar would evaporate but as long as all of these people believe in it and use it as the reserve currency for the world the US dollar has nothing to fear. It may fluctuate but you can't do a 'bank run' on the USD. You can do all of the usual forex tricks (including shorting the USD) depending on how much your own belief is at odds with a counterparty that holds a (slightly) different belief. George Soros famously made a fortune (a cool billion, which was a lot of money in the day) doing just that with the British Pound. Individual banks may go under, but they all use the same underlying currencies. Binance has a similar problem (but different in many important respects). The number of people that 'believe' in Binance is a lot smaller and if enough of those people want their money (for instance USD!) back then Binance had better cough them up or they'll go bust. If you don't have a deposit there you are likely either a neutral party or you are already liquid (in that case: good only). If you do have a deposit there and you're willing to let them hold on to it then you are betting that they will stay in business. I don't know about your financial situation but if you can't afford to lose your money then you may want to update your status bits on this news, a $2B outflow in a short period of time is not something a company like Binance can sustain indefinitely, where 'indefinitely' is something like '30 days'. It will be interesting to watch this play out and to see if they manage to hold the fort. Personally I would be highly surprised if they can sustain a drawn out run. But if they somehow can they'll be attracting a lot of business.

CSMastermind 4y ago

The US dollar is backed by the monopoly of force the United States government maintains primarily within its own borders and without as well. The government requires you pay taxes in USD and will lock you in a cage by force if you do not. It requires that you accept USD as valid for commerce and again will lock you in a cage by force if you do not. If you attempt to counterfeit the currency, again locked in a cage by force. The USD is as strong as the government's monopoly on force. Crypto currency is backed by either nothing ("people faith" waves hands in a rainbow gesture) or some dude named Dan in Ohio or whatever.

Gigachad 4y ago

The difference is that no one actually believes in bitcoin. They all plan to cash out in to USD later.

meepmorp 4y ago

> The USD has never been 1-1 backed. Still seems to work just fine. Others have mentioned the problems with this statement, but I'd like point out that it's also literally untrue. The coinage act of 1792 created the US dollar: > Dollars or Units - each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.