Could an actual bank perhaps decide to issue cryptocurrency to its customers at a $1/coin exchange rate? Wouldn't be full reserve, given that it's a bank, but the deposits would be FDIC-insured, right?
> Could an actual bank perhaps decide to issue cryptocurrency to its customers at a $1/coin exchange rate?
Banks have to know their customers (KYC) [1]. This requirement is multifarious; banks have KYC obligations to the justice system, the U.S. Treasury, systemic financial regulators (e.g. the Fed), specific financial regulators (e.g. FINRA, the FDIC), et cetera.
In the olden days, a discerning gentleman might request an anonymous, numbered Swiss bank account [2]. Over time, it became clear these "discerning gentlemen" were politicians hiding graft money or arms and drug runners storing profits. Anonymous accounts were globally banned and KYC laws were born.
This is the fundamental flaw of all "stablecoins". They're an overly-complex instantiation of anonymous (and illegal) bank accounts. Needless to say, over-complicating something doesn't make it go away.
Bearer bonds [1] are intriguing, mechanically and historically. You will note, under the Restrictions section of your Manulife memorandum [2], that its sale outside Canada or to Americans is prohibited. This is because the issuance of such instruments was practically banned in the United States in 1982 [3].
Bearer instruments are, while prevalent, in decline [4]. It is an active area of global financial regulation [5] where even institutions like the Bank of England have to work to get their notes issued and treated properly.
TL; DR A reputable offshore bank might be able to issue a bearer token redeemable for one British pound or Canadian dollar provided they go to great extents to ensure they don't end up in the hands of Americans or anyone in the United States. It would be an uphill battle, however, which in turn necessitates a heavy issuance premium.
I looked into the law that banned bearer bonds, TEFRA, and I think maybe the relevant provisions wouldn't apply to instruments that mature immediately (which is certainly less than 183 days) and pay not interest (including in the way zero coupon bonds pay interest).
I'm not sure how that would work. It sounds like the opposite of a normal bank relationship.
In general the idea of fractional reserve is that you, the customer, deposit dollars in a bank account, the bank lends out those dollars to borrowers, but still allows you to come and get your dollars back at any time you like. This takes advantage of something like statistical multiplexing -- it is unlikely that everyone will want his dollars back at the same time. And in modern times it is backed up by various government schemes which will provide liquidity in the case of a run on the bank.
If the bank issued you a cryptocurrency at a rate of $1/coin then it would be same thing as giving you your dollars back. It would reduce the banks reserves.
I guess your scheme would make more sense on the other side of the bank. That is, the bank could lend out coins rather than dollars. But in that case there isn't a multiplier for coins, because the reserves would still be in dollars.
> If the bank issued you a cryptocurrency at a rate of $1/coin then it would be same thing as giving you your dollars back. It would reduce the banks reserves.
Why would it reduce their reserves? The bank would still be holding your USD, and they only have to give it back when you trade the coin back to them for cash.
In that model the bank is selling you a coin for USD. It takes your $100 and issues you 100 coins. That $100 is no longer yours--you have the coins instead, though the bank promises that it will buy them back at a $1 per coin.
On their books they have a liability of $100 (the repurchase obligation) and they have $100 in cash. You're right that it doesn't affect their reserves, but it also doesn't act as a multiplier. The liabilities and assets balance. In order for there to be a multiplier the bank would have to issue coins and still allow the customer to access the cash as a deposit. Thus the coins would be being lent as opposed to sold.
Right. How is that any different from when you deposit $100 in the bank and the bank promises to give you your $100 back when you ask for it? That doesn't reduce their reserves; it _increases_ them.
Only difference with using coins this way is that rather than the $100 being tied to you as an individual, it'd instead be tied to the coin itself. (So whoever possesses $100 worth of the bank's coin can get that same amount back in USD.)
Thanks for the search keyword. Seems like bearer deposit notes are indeed legal. (Though it seems like they're not insured.) So it seems like this concept could work after all?
