Hi Jeremy, thank you describing an alternative model which solves many issues. Stablecoins bridge between the blockchain infrastructure and traditional finance, but bridges always lead to congestion. As we already see with liquidity issue.
The coloured money model is again inefficient.
Your model is what I usually describe as "all my money sits on the blockchain in my wallet. I lend my money to a commercial bank for yield and vice versa. But my money (meaning my tokenised deposits) are freely interchangeable and fungible. Or simply said: we just move the worldwide deposit and payment infrastructure onto blockchains. Why do we need any central ledgers anymore?
Thank you for your feedback Christian - I agree with you. Money issued on a shared ledger/blockchain would make the monetary system more efficient, stable and less risky than it is today.
The current system of using reserves to manage imbalances between commercial banks when they create loans is a feature of the past where it is only feasible for a commercial bank to have its own proprietary ledger. However, every time a bank creates a loan it exposes all other banks to credit risk - when the borrower uses the loan to pay into an account at another bank, that bank is immediately exposed to credit risk from the bank creating the loan.
The system is inherently unstable. A shared ledger/blockchain fixes it.
However, the core purpose of central banks is to manage risks resulting from the reserves they create and they wield enormous power. Reserves are so entrenched in the current monetary system that central banks are unlikely to face pressure to give up this power any time soon.
If given the choice between holding a token backed by the central bank or a token backed by the fractional reserves of a commercial bank, surely people would choose the central bank version.
Hi Jeremy, thank you describing an alternative model which solves many issues. Stablecoins bridge between the blockchain infrastructure and traditional finance, but bridges always lead to congestion. As we already see with liquidity issue.
The coloured money model is again inefficient.
Your model is what I usually describe as "all my money sits on the blockchain in my wallet. I lend my money to a commercial bank for yield and vice versa. But my money (meaning my tokenised deposits) are freely interchangeable and fungible. Or simply said: we just move the worldwide deposit and payment infrastructure onto blockchains. Why do we need any central ledgers anymore?
Thank you for your feedback Christian - I agree with you. Money issued on a shared ledger/blockchain would make the monetary system more efficient, stable and less risky than it is today.
The current system of using reserves to manage imbalances between commercial banks when they create loans is a feature of the past where it is only feasible for a commercial bank to have its own proprietary ledger. However, every time a bank creates a loan it exposes all other banks to credit risk - when the borrower uses the loan to pay into an account at another bank, that bank is immediately exposed to credit risk from the bank creating the loan.
The system is inherently unstable. A shared ledger/blockchain fixes it.
However, the core purpose of central banks is to manage risks resulting from the reserves they create and they wield enormous power. Reserves are so entrenched in the current monetary system that central banks are unlikely to face pressure to give up this power any time soon.
If given the choice between holding a token backed by the central bank or a token backed by the fractional reserves of a commercial bank, surely people would choose the central bank version.