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Author Topic: Why Fractional Reserve Banking Didn't Prop Up Yet?  (Read 3886 times)
kiba
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December 10, 2010, 05:49:19 AM
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So, we do not see any fractional reserve banking yet. All the banks are full-reserve.

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grondilu
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December 10, 2010, 05:52:54 AM
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So, we do not see any fractional reserve banking yet. All the banks are full-reserve.

Which banks are you talking about, exactly ?
kiba
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December 10, 2010, 05:53:37 AM
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Which banks are you talking about, exactly ?


Mtgox and mybitcoin.

grondilu
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December 10, 2010, 05:57:18 AM
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Mtgox and mybitcoin.

How do you know they are 100% reserved ?

Anyway, it might be a good idea to do it.  The banker could make money on transactions and the deposit could be rewarded with an interest.  This would be a comeback to basics of banking.  It could be fun and educational.

I would not be interested as an investor anyway, for I've always prefered equity shares than debentures.
The Madhatter
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December 10, 2010, 06:13:24 AM
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Which banks are you talking about, exactly ?


Mtgox and mybitcoin.

Neither of them are "banks". They do not make loans, charge, or pay interest.
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December 10, 2010, 06:18:50 AM
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mtgox is obviously not full reserved since LRUSD and bank wires aren't dealing with the same currency, and you can fund your account with both.


grondilu
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December 10, 2010, 06:19:32 AM
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Neither of them are "banks". They do not make loans, charge, or pay interest.


I think those activities come naturally once you start collecting and storing money from the public.

When you collect money from the public, you can not just sit on that money, doing nothing.  It would be a waste of resource.  You will eventually decide to do something with it, without telling your clients if necessary.

That's why banking is usually described as an unseparable set of apparently different activities :  collecting, storing, offering credit and so on...
kiba
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December 10, 2010, 06:25:53 AM
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Hmm, how do you verify the integrity of banks?

grondilu
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December 10, 2010, 06:29:06 AM
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Hmm, how do you verify the integrity of banks?

Well, you're supposed to trust a bunch of bureaucrats who will audit the bank and check that everything is in order and that the accounts have not been falsified.
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December 10, 2010, 06:32:42 AM
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I think those activities come naturally once you start collecting and storing money from the public.

I disagree. Full reserve holdings companies do exist, and they don't necessarily go fractional reserve "naturally".

When you collect money from the public, you can not just sit on that money, doing nothing.  It would be a waste of resource.  You will eventually decide to do something with it, without telling your clients if necessary.

That largely depends on the agreement that you have with the organization that is holding your money. If a breach of the agreement happened the "bank" (or e-wallet company, whatever), would quickly lose the public's trust and fast become worthless/useless.

Of course if it were done silently only a run on the holdings would make that information known. This is an entirely different topic. lol
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December 10, 2010, 06:39:51 AM
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I think those activities come naturally once you start collecting and storing money from the public.

I disagree. Full reserve holdings companies do exist, and they don't necessarily go fractional reserve "naturally".

I might be wrong here, but I heard that under traditional islamic laws, usury, and thus lending for interest are forbidden.

http://en.wikipedia.org/wiki/Islamic_banking

After seeing that money as debt video, that sounds like a pretty good thing !

sirius
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December 10, 2010, 06:54:17 AM
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Hmm, how do you verify the integrity of banks?

In case of Bitcoin, the banks can give out wallet backups for each user to ensure they're full reserving.

Identifi - Decentralized address book with trust ratings
I'm not a forum admin - please contact theymos instead.
The Madhatter
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December 10, 2010, 06:56:16 AM
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I might be wrong here, but I heard that under traditional islamic laws, usury, and thus lending for interest are forbidden.

Uh huh.

FYI: The topic of usury has been discussed on these forums before, and in great depth.

It was also frowned upon by other religions too. It was punishable by death in many regions of the world.

Earning money, just because you have money, was seen as parasitic.
kiba
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December 10, 2010, 06:57:37 AM
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Loaning is fine. It's just losing my saving due to fractional reserve banking that I am worried about.

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December 10, 2010, 07:03:10 AM
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Hmm, how do you verify the integrity of banks?

In case of Bitcoin, the banks can give out wallet backups for each user to ensure they're full reserving.

Well

The Madhatter
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December 10, 2010, 07:06:59 AM
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From mybitcoin's terms: (https://www.mybitcoin.com/open-account.php)

Quote
3.2 MYBITCOIN LLC is not a bank and the MyBitcoin System does not operate as a bank and therefore MYBITCOIN LLC nor the MyBitcoin System are in any way subject to any form of banking regulations in any jurisdiction.

Translation: Not a bank.

Quote
4.1 User holds title to the Bitcoins in the User's User Account and the User maintains all rights and privileges over said Bitcoins.

Translation: The Bitcoins in your mybitcoin account belong to you.

Quote
6. OBLIGATIONS OF MYBITCOIN LLC

6.1 MYBITCOIN LLC will ensure that for all Bitcoins in circulation in the MyBitcoin System there is at all times an identical quantity of unencumbered Bitcoins held in MYBITCOIN LLC's master Bitcoin wallet.

Translation: Full reserve.

Yes, they *could* steal and plunder and be a bunch of pirates but that would ruin their reputation. Why would they put all of this effort into this project just to toss it all away?

I, personally, don't keep my Bitcoins there. I use their merchant tools because they seem to be the best ones out there so far.
grondilu
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December 10, 2010, 07:07:55 AM
 #17

Notice that nothing prevents an islamic banker to lend your money (with no interest of course), to someone.

This means that you could also lose your savings with this system.


There's nothing wrong in fractionnal reserve banking, as long as the customer knows what is is doing.  He is giving his money to someone else.  There is necessarly a risk involved.
kiba
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December 10, 2010, 07:10:57 AM
 #18

Well, I am definitely going to petition banks I used if I can download their wallet at least one time everyday at anytime I want.

grondilu
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December 10, 2010, 07:18:17 AM
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Well, I am definitely going to petition banks I used if I can download their wallet at least one time everyday at anytime I want.

Well, they'll tell you you can.  Truth is you won't.

What I mean is that even with a bitcoin bank, despite the technical possibility for a customer to withdraw his funds at any time, statistical laws can be found, allowinng the bank to determine an optimal reserve ratio.
The Madhatter
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December 10, 2010, 07:19:33 AM
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In case of Bitcoin, the banks can give out wallet backups for each user to ensure they're full reserving.

Yes and no. I suspect that spends between users at the same e-wallet (I don't like calling them "banks".) company are not handled the same way as regular Bitcoin client spends. The wallet file backups would be incomplete or not entirely accurate.

For example, I've noticed that when I get Bitcoins from a regular client to mybitcoin's SCI I can see the amount on the block explorer. When I get Bitcoins from another mybitcoin user I don't see it on the block explorer. They must just move bits around in their database instead.
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