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> A shadow dollar system, newly blessed by federal statute, is quietly migrating the savings of the global poor onto the balance sheets of a handful of opaque
by titanomachy 4mo ago
> A shadow dollar system, newly blessed by federal statute, is quietly migrating the savings of the global poor onto the balance sheets of a handful of opaque private companies.
I'm out of the loop on this one. Is he talking about some crypto thing?
- salmonik 4mo agoI am pretty sure he's talking about the TrumpCoin.
- deweller 4mo agoI assume he is referring to the uptick in stablecoin adoption. USD Stable coins are US dollar-backed cryptocurrency tokens that are intended to always hold a value of $1 USD. Stablecoins are not backed by a central bank. Instead their source of value comes from a private company that holds actual US dollars or USD-equivalent reserves (like treasury bills, etc).
- RobotToaster 4mo agoI've always wondered, how do the companies that run stablecoins make a profit? Are they buying treasury bonds?
- kikimora 4mo agoYes, bonds, sometimes corporate debts, often money market participation.
- koolba 4mo agoEach $1 of stable coin is supposed to be backed by $1 of dollar or short term equivalent. So the issuer is making money by collecting interest on it. 3-4% of billions (USDC alone is $80 billion) would itself be billions of dollars of annual interest. Easily covering the operating cost of these companies. However, they don’t keep it all. Nobody is going to let you hold their cash in size without getting a slice of the interest. All the big players (like an exchange holding USDC of its patrons) cut deals with the stable coin issuers for a revenue split of that interest.
- Ekaros 4mo agoWell if you pay 0 on deposits and then loan money out even just to treasuries there is money to be made. Get enough volume and it is big. Next step is riskier investments and not being fully backed... After all it is just IOU you minted yourself...
- deleted 4mo ago[deleted]
- luke5441 4mo agoThe profit created from issuing currency is called seigniorage. It is madness letting private companies capture this.
- nytesky 4mo agoIs it similar to WildCat banking?
- andy81 4mo agoMore than similar. Another word for the same thing.
- l23k4 4mo agoI'd argue that the poor capitalization was a core part of wildcat banking, that's not really the case here.
- nytesky 4mo agoIs that a tongue in cheek reference to my inadvertently weird capitalization of wildcat as WildCat — no idea why I did that, maybe a throwback to my ThunderCats fandom of my youth. Maybe lack of capital is a factor, but doesn’t that only come into play if redemptions are large? If it acts as a currency in circulation, there can be very little actual capital backing it (like how fractional reserves work for regular banks, IIRC).
- l23k4 4mo ago>Is that a tongue in cheek reference to my inadvertently weird capitalization of wildcat as WildCat — no idea why I did that, maybe a throwback to my ThunderCats fandom of my youth. No, but that's hilarious. Good catch! I don't think "wildcat banking" would be known as that if the banks hadn't been poorly capitalized (as in, they didn't have the money). If the banks had actually worked out, we'd just be calling it "banking". Today, stablecoins have a hilariously simple way to print money: just buy treasuries, money market funds, or whatever. We're not necessarily going to see them collapsing due to poor capitalization.
- sunshine-o 4mo ago> Stablecoins are not backed by a central bank. Instead their source of value comes from a private company that holds actual US dollars or USD-equivalent reserves (like treasury bills, etc). Yes but the problem is there are already a lot of US dollars and the pandora box was opened since the end of WW2 at least. Is the US dollar you hold in a bank outside of the US the same as the one in the US? no... Are they all insured and backed by the Federal Reserve? absolutely not. In a sense if you are abroad the USDC you get from Circle on a blockchain are much closer to a "real" dollar than most of us can get their hand on.
- l23k4 4mo agoWhen you go outside of the nice countries, local money becomes worthless. Nobody wants it, they'd much rather have dollars instead. Stablecoins for the first time offer a reasonable way for the global poor to store value in dollars, or in the form of any relatively stable currency. Obviously this comes with all kinds of issues, but it's still better than the original situation where "savings" simply didn't exist except in the form of physical dollars or gold bought at a significant premium.
- pjc50 4mo agoWhile this has a very reasonable point about access to dollars, it's also funny to contrast it against the breathless propaganda from crypto advocates that the dollar itself is going to be the victim of hyperinflation Real Soon Now.
- ryanjshaw 4mo agoCrypto advocates are not one homogenous blob.
- dragandj 4mo agoThe global poor already had ways to store value in dollars. They could simply exchange whatever meager savings they had into... real dollars! And they have been doing that for decades. I don't know whether anyone in the west really believes in this bullshit of cryptocurrencies that give the global poor options.
- ryanjshaw 4mo agoThis is simply not true. In South Africa, one of the largest African economies, you cannot hold foreign currency unless you are traveling and then you have to sell it back within 30 days of returning to the country. You can open a foreign currency account with a minimum of eg R1500 which is half the monthly minimum wage. Then there are the exchange fees to talk about. You are oversimplifying.
- 4mo ago
- sunshine-o 4mo agoIn recent years, since a lot of central banks have been putting gold and other assets instead of US dollars on their balance sheet, the dollar need new outlets and this is what those stablecoins through Circle and Tether are: easy access to dollars for anybody with a computer and internet connection, skipping banks and other financial institutions. Trump is a pro crypto president in the sense that he is making it official and a lot of actors in finance are fighting it because it is killing their own lucrative scam. The whole Trump memecoin and World Liberty Financial is shady but really a side story. The bottom line is if you hold USD a lot of "legacy" actors are making money on your back. With stablecoins Tether, Circle & co join the party.
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- Jordan_Frost 4mo agoStablecoins. The statute is the GENIUS Act, and the 'opaque companies' are Tether and Circle holding the reserves that back the dollars people in high-inflation countries actually use. The tokens themselves are boring, what's unaudited is whether the t-bills behind them are really there in the amounts claimed.