From one survey:
"Prior to the early-twentieth century, US banks tended to be much narrower than they are today. Common modern banking practices, such as maturity transformation and explicit loan commitments, arose only after the creation of the Federal Reserve and the FDIC"
How so? I don't think they have access to your digital wallet, unlike a bank.
This is incorrect. Facebook's tokens given users the right to exchange their tokens back for the backing assets.
Well, yeah, of course you can convert the tokens back, similar to how you can exchange between currencies, but it would also depend on the exchange rate. You would not necessarily get back the same amount you put in.
"It is important to highlight that this means one Libra will not always be able to convert into the same amount of a given local currency (i.e., Libra is not a “peg” to a single currency). Rather, as the value of the underlying assets moves, the value of one Libra in any local currency may fluctuate. "
https://libra.org/en-US/white-paper/#the-libra-currency-and-...
Alternatively, you can look at this like an exchange traded fund. In both cases what you are buying are tokens which represent shares of other assets.
I disagree that this is "conceptually" a bank. Facebook's business model isn't lending out the reserves. If it was, banking regulation would apply.
Also, in a modern bank, reserves are maybe 10%, and you get less than zero percent interest after inflation for that risk exposure.
We've all seen in the past on how well "financial oversight" worked. At this point, I think I'd honestly rather put my money with Facebook than many of those actual banks out there. Facebook is at least a profitable company in its own right.
It worked remarkably well - no consumer lost their deposits to a bank failure. The fact that banks lent out too much money had no impact on consumer deposits, thanks to oversight.
I like how you're trying to make like the financial crash was no big deal because this 'oversight' worked in this narrow context.
I wonder if you'd claim that the banks lending out too much money didn't have absolutely catastrophic effects on the economy in general and by association, millions of people's livelihoods around the globe.
Also, you may say this "worked" in the US, but other countries didn't get quite so lucky playing that game.
Keep in mind, it's to the bank's advantage to remain solvent at all costs. An insolvent bank will be liquidated and shareholders are left empty handed. Between the FDIC insurance and the liquidated assets is how these things are paid out.
What most people don't grasp is just how regulated the financial industry is.
Silicon Valley loves taking risks (and failing!), but when a bank does it it's unacceptable? This stuff happens in a capitalist economy. I mean, it's not like it was "the banks" in a vacuum. It was governments, mortgage brokers, builders, house-flippers, your neighbour, speculators...everyone benefited from the wealth effect of cheap money and rising home values. Until they didn't; then it became the banks' fault.
No, what's unacceptable is the government bailout "guarantee" you get from being "too big to fail". That's not "taking a risk", that's not "capitalism", that's gambling with someone else's money.
I will agree though that you can't blame the banks for an environment where they're effectively pushed to lend recklessly, that's the result of monetary policy.
This is so ridiculous that I don't even know how to argue with it.
To be clear, I wouldn't prefer to put my money with either. But if push comes to shove, would you prefer to have an account at a failed bank that holds 10% in reserves, or a private company that holds close to 100% of reserves, because it is not a bank?
Before you answer, please imagine for a second that you had a decent amount of money to retire on, not whatever FDIC and the already bankrupt state promises to reimburse you with.
Thus, a user faces systemic banking system risks plus all firm/stablecoin-provider risks. That combined risk will almost certainly be strictly larger than the systemic banking system risk you'd face by just depositing funds in a bank account that you directly control.
Otherwise, you do have a point, a systematic bank failure would likely cause issues here as well. However, I highly doubt they'd be storing significant amounts of money as cash deposits in banks for the interest. There's better options, such as short-term treasury bonds.
Storing serious amounts of money in any of these stablecoins for any real length of time is economically irrational because by exiting their walled garden, you can obtain a higher return in exchange for reduced risk. Withdrawing is even better than a risk-free reward; it's a risk-reducing reward.
My point is that bank deposits aren't as safe as people like to believe they are, at least beyond what is insured.
In a systemic crisis, chances are the government will just print whatever money needs to exist and bonds too will take a hit as a result. Plus, whatever happens in the US will impact the whole world. You can't realistically hedge against this with any currency/bond.
I am with parent on this one.
Now imagine that same situation, but with Facebook at the helm. Either Facebook is in risk of insolvency, or private speculation with zuckbucks going south. Do you think Facebook will just go bancrupt in order to protect the zuckbuck owners? Or will they more probably recreate Cyprus, but way worse for the zuckbuck holders?
As for this new cryptocurrency, it's designed not to go insolvent, because it is more or less fully backed with actual currency/bonds. It has nothing to do with Facebook's financials.
By contrast, besides insurance for a modest amount, a bank deposit is only "backed" mostly by securities and loans years into the future, most of which can go bad in a crisis.
People willfully risked risked their capital to target above-average returns. That didn't work out, which, when looked at from a distance, is perfectly fine - other market participants made better decisions, end of story. What isn't perfectly fine is people then trying to socialize their losses afterwards. You can't have a cake and eat it, too.
> "Libra’s mission is to enable a simple global currency and financial infrastructure that empowers billions of people."
They do this by issuing coins in exchange for fiat money, which is held by the reserve.
> "Interest on the reserve assets will be used to cover the costs of the system, ensure low transaction fees, pay dividends to investors who provided capital to jumpstart the ecosystem [...]. Users of Libra do not receive a return from the reserve."
Conceptually this is a bank, but with no interest returned to users, no financial oversight from governments, controlled by Silicon Valley's top companies.