Cykros on Nostr: It prevents the creation of BASE money from thin air, but not credit (aka broad ...
It prevents the creation of BASE money from thin air, but not credit (aka broad money).
Imagining nobody would extend loans simply because we have a bitcoin standard is probably wishful thinking. That said, it'd be done with more discipline than ever, as even gold's supply is a little flexible. But, as we've seen with the Eurodollar system, not having base collateral doesn't actually prevent banks from settling by the cancellation of mutual liabilities (which can arrive from all manner of money market movement, most well known being the repo market).
If enough people insist on self custody this isn't a huge threat as prudent risk management will not allow private banks to get too far from being able to be sure they can honor BTC denominated liabilities in the case of a bank run. But to the extent people are willing to let banks or other credit facilities hold their coins, we still have the dangers of fractional reserve and credit expansion.
The only real thing preventing this is that Bitcoin is a LOT easier to self custody and transact in than physical hold was. But on the other hand, people have gotten a LOT lazier...and less well read.
Imagining nobody would extend loans simply because we have a bitcoin standard is probably wishful thinking. That said, it'd be done with more discipline than ever, as even gold's supply is a little flexible. But, as we've seen with the Eurodollar system, not having base collateral doesn't actually prevent banks from settling by the cancellation of mutual liabilities (which can arrive from all manner of money market movement, most well known being the repo market).
If enough people insist on self custody this isn't a huge threat as prudent risk management will not allow private banks to get too far from being able to be sure they can honor BTC denominated liabilities in the case of a bank run. But to the extent people are willing to let banks or other credit facilities hold their coins, we still have the dangers of fractional reserve and credit expansion.
The only real thing preventing this is that Bitcoin is a LOT easier to self custody and transact in than physical hold was. But on the other hand, people have gotten a LOT lazier...and less well read.