Why There Should Be A Bitcoin Central Bank

[Gleb Gamow]

If a centralized Bitcoin bank ever does come to fruition, I suggest having disinterested Mormons operate it. You'll be surprised as to how many Mormons work in various trusted departments in Las Vegas casinos. Yes, a small handful may have committed fraud, but overall they're an honest lot. The only drawback is that the Bitcoin Bank would probably be located in Utah, perhaps near that other acclaimed entity.



But, that acclaimed entity could always borrow extra power from Bitcoin's bank conveniently located down the road to augment their scat needs.  



As an added bonus, there'll be a nice venue to hold an annual Bitcoin conference in the Beehive State, albeit Bees Brothers products are extra.

[jbreher]

... conveniently located down the road to augment their scat needs.  

I had no idea the Mormons were into that sort of thing.

[jbreher]

I cannot believe so many "free market" people are against this idea. If this is what consumers want, someone should provide it, for a fee. More to the point, lending is important, especially when buying a house. Fractional reserves allows others to earn interest on their savings.

I cannot believe so many people accept this idea.

Here's the issue: by making fractional reserve loans, the banks are creating money out of nothing. Then they lend this newly created out at interest. This money that cost them nothing. The increase in the money supply reduces the purchasing power of every bit of money that existed before the loan was made. This reduction in purchasing power is a very real theft of very real wealth from each and every person that held money at t=0-.

And who benefits from this theft of wealth? Temporarily, the loanee. But by the first payment, the bank is receiving net positive income from this stolen wealth.

Theft is theft. Whether by gunpoint or by fractional reserve banking.

[itsAj]

I cannot believe so many "free market" people are against this idea. If this is what consumers want, someone should provide it, for a fee. More to the point, lending is important, especially when buying a house. Fractional reserves allows others to earn interest on their savings.

I cannot believe so many people accept this idea.

Here's the issue: by making fractional reserve loans, the banks are creating money out of nothing. Then they lend this newly created out at interest. This money that cost them nothing. The increase in the money supply reduces the purchasing power of every bit of money that existed before the loan was made. This reduction in purchasing power is a very real theft of very real wealth from each and every person that held money at t=0-.

And who benefits from this theft of wealth? Temporarily, the loanee. But by the first payment, the bank is receiving net positive income from this stolen wealth.

Theft is theft. Whether by gunpoint or by fractional reserve banking.

Fractional reserves are not free to banks. The bank must pay it's deposit holders and bond holders interest on the money on deposit and lent. When a bank lends money to someone, they need to make sure they are an appropriate risk and price the loan accordingly. When a borrower falls behind on their payments they need to make collection efforts to collect what is owed by the borrower. All of these things cost money.

[jbreher]

Fractional reserves are not free to banks. The bank must pay it's deposit holders and bond holders interest on the money on deposit and lent. When a bank lends money to someone, they need to make sure they are an appropriate risk and price the loan accordingly. When a borrower falls behind on their payments they need to make collection efforts to collect what is owed by the borrower. All of these things cost money.

Bullshit. The fractional part is created out of thin air. That is what makes it fractional. They don't pay any interest on this newly created money.

[odolvlobo]

Fractional reserves are not free to banks. The bank must pay it's deposit holders and bond holders interest on the money on deposit and lent. When a bank lends money to someone, they need to make sure they are an appropriate risk and price the loan accordingly. When a borrower falls behind on their payments they need to make collection efforts to collect what is owed by the borrower. All of these things cost money.

Bullshit. The fractional part is created out of thin air. That is what makes it fractional. They don't pay any interest on this newly created money.

I think you take the "create money out of thin air" expression too literally. They get money from depositors and they loan it out. That's how money appears to be created since both the depositor and the borrower act as if they have the money.

[logger]

Forbes contributors aren't some unified body. They freelance contribute. I've read many good articles by contributors and many really terrible (and grammatically error-ridden) ones like this.

[illymoka]

Forbes contributors aren't some unified body. They freelance contribute. I've read many good articles by contributors and many really terrible (and grammatically error-ridden) ones like this.

Right, but this Forbes contributer is also a speaker for them e.g. at http://bitcoinexpo2014.com/

[polunna]

While I agree that a bitcoin central bank is completely against what bitcoin stands for, I think the idea of being able to opt for a full reserve or fractional reserve account at a bitcoin exchange is pretty good. Users could choose to put their coins to work and get some interest in return or just keep them in storage without interest. It could possibly help bitcoins liquidity problem too. This might be irrelevant though if places like btcjam and other ways to loan money become more prevalent.

[LiberyOrDeath]

Forbes contributors aren't some unified body. They freelance contribute. I've read many good articles by contributors and many really terrible (and grammatically error-ridden) ones like this.

But honestly, if this guy was a truly independent and freethinker, do you think Forbes would post his article? If he was the right kind of person and genuine he wouldn't be writing articles for Forbes in the first place. That's more than enough clues for me.

[lovegood]

I fail to even understand his example. So when a central bank exists other companies, investment firms and banks are unable to rob you blind? Eh yes they can. He's mixing up arguments, like so many people. Decide what point you want to make and research that.

[master-P]

Forbes contributors aren't some unified body. They freelance contribute. I've read many good articles by contributors and many really terrible (and grammatically error-ridden) ones like this.

But honestly, if this guy was a truly independent and freethinker, do you think Forbes would post his article? If he was the right kind of person and genuine he wouldn't be writing articles for Forbes in the first place. That's more than enough clues for me.

Writers, like everyone else need to pay bills. If you are implying that the writer of the article in the OP should write only on his own site, then he would likely end up finding a new career because this would likely not be enough to support himself. Publications like Forbes will hire freelance writers because of their ability to write and draw in readers.

[arxwn]

Forbes contributors aren't some unified body. They freelance contribute. I've read many good articles by contributors and many really terrible (and grammatically error-ridden) ones like this.

But honestly, if this guy was a truly independent and freethinker, do you think Forbes would post his article? If he was the right kind of person and genuine he wouldn't be writing articles for Forbes in the first place. That's more than enough clues for me.

Writers, like everyone else need to pay bills. If you are implying that the writer of the article in the OP should write only on his own site, then he would likely end up finding a new career because this would likely not be enough to support himself. Publications like Forbes will hire freelance writers because of their ability to write and draw in readers.

That is very true, but lets get real what was the main point of the article ?
Is there a chance in a billion that the core developer team would propose such a ridiculous measure ?
Of course not, that was a cry call to the people that bought late to demand something for nothing and put pressure.
But the writer does not understand that bitcoin in its core is not democratic it is anarchic in the way that gravity does not care about your feelings when you step off the ledge.

[The One]

There are two possibilities when it comes to Bitcoin banking, fractional reserve and central banking:

1) People in general never accept Bitcoin substitues as money.  In otherwords, people want to have and to hold real Bitcoins in their hot little hands and do not use and accept Bitcoin IOUs as money (notes representing a future claim on an amount of BTC held on an account somewhere).

In this scenario:

     Bitcoin banking is relegated to "Bitcoin warehousing"
     Fractional reserve banking is somewhat limited
     Central banking (central control of the number of Bitcoin notes in circulation) is not really needed

2) People in general do accept Bitcoin substitues as money.  In otherwords, people do not really care if they have and hold real Bitcoins, they accept Bitcoin notes to be as good as or almost as good as the real thing and they accept Bitcoin IOUs as money.

In this scenario:

     Bitcoin banking can develop and grow
     Fractional reserve banking can develop and grow
     Central banking (central control of the number of Bitcoin notes in circulation) would probably be necessary to limit and control the fractional reserve Bitcoin banks - keep them from printing too many Bitcoin notes

Note that even in scenario #2 you personally can decide to not participate in the Bitcoin substitute market and demand and use only the real thing so even if a vast market in Bitcoin substitutes develops you personally do not have to participate in it.

Bitcoin substitute = altcoin.

[jbreher]

I think you take the "create money out of thin air" expression too literally. They get money from depositors and they loan it out. That's how money appears to be created since both the depositor and the borrower act as if they have the money.

That is because they _do_ both have the money. New money is absolutely created by the act of making the loan. I do not take the expression too literally. You are mistaken. Please read what is occurring before you make further incorrect assertions.

[knight22]

I think you take the "create money out of thin air" expression too literally. They get money from depositors and they loan it out. That's how money appears to be created since both the depositor and the borrower act as if they have the money.

That is because they _do_ both have the money. New money is absolutely created by the act of making the loan. I do not take the expression too literally. You are mistaken. Please read what is occurring before you make further incorrect assertions.

Yup, it's all written in here:

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q102.pdf
http://lisgi1.engr.ccny.cuny.edu/~makse/Modern_Money_Mechanics.pdf

banks create money whenever they lend to someone in the economy or buy an asset from consumers.

[arxwn]

Fractional Reserve Banking opens the pandora box of corruption of man's soul , period paragraph.
It is extra evil when done in systemic level or dictated from government.
I mean this is a bitcoin forum right ? This is like the bare minimum we can agree on.

[itsAj]

Fractional reserves are not free to banks. The bank must pay it's deposit holders and bond holders interest on the money on deposit and lent. When a bank lends money to someone, they need to make sure they are an appropriate risk and price the loan accordingly. When a borrower falls behind on their payments they need to make collection efforts to collect what is owed by the borrower. All of these things cost money.

Bullshit. The fractional part is created out of thin air. That is what makes it fractional. They don't pay any interest on this newly created money.

I think you take the "create money out of thin air" expression too literally. They get money from depositors and they loan it out. That's how money appears to be created since both the depositor and the borrower act as if they have the money.

This is exactly correct. This is why banks need to keep a certain percentage of their money either on deposit at the federal reserve or in their cash vaults, so when depositors want to withdraw their money to another bank or want to withdraw cash fiat they are able to do so.

Banks must also keep a certain percentage of each new loan on hand as a loan-loss reserve to account for potentially losing money on the loan.

[odolvlobo]

I think you take the "create money out of thin air" expression too literally. They get money from depositors and they loan it out. That's how money appears to be created since both the depositor and the borrower act as if they have the money.

That is because they _do_ both have the money. New money is absolutely created by the act of making the loan. I do not take the expression too literally. You are mistaken. Please read what is occurring before you make further incorrect assertions.

My mistake is considering the monetary base to be money and the rest to be imaginary. In a way that is true, but if it walks like a duck and it quacks like a duck ...

Bitcoin is simliar in a way. Bitcoins don't exist in the sense that they are tangible or that they are even stored somewhere, but somehow you can still transfer them.

[knight22]

I think you take the "create money out of thin air" expression too literally. They get money from depositors and they loan it out. That's how money appears to be created since both the depositor and the borrower act as if they have the money.

That is because they _do_ both have the money. New money is absolutely created by the act of making the loan. I do not take the expression too literally. You are mistaken. Please read what is occurring before you make further incorrect assertions.

My mistake is considering the monetary base to be money and the rest to be imaginary. In a way that is true, but if it walks like a duck and it quacks like a duck ...

Bitcoin is simliar in a way. Bitcoins don't exist in the sense that they are tangible or that they are even stored somewhere, but somehow you can still transfer them.

I would say that the main difference between bitcoin and fiat is that fiat fundamentally represents debts while bitcoin represents capital.