Isn't this pretty much the description of every company? I understand feduciary responsibilities blah blah, but if the company didn't think they could do both then they wouldn't be running the legitimate buisness. If it was started to intentionally dupe people that's an entirely different thing.
Objectives and incentives are extremely powerful drivers of mass behavior in large organizations. Maximizing profit is a much different objective that contributing to the social good. That is why some functions are best fulfilled by non profits and government.
There world is full of cases where products or services are degraded in order to maximize profit. Has DRM ever made for a better gaming experience? Do clickbait articles result in a better informed public?
> Which is why we don't let private companies create currency willy-nilly anymore.
As I understand, private banks extend loans, which while not being printing money, the loans being deposits (which can be withdrawn) the effect of creating currency is the same.
Issuing tether was basically an unregulated bank loan system. With a regular loan the created money is destroyed when you repay it. In theory that would happen to the tether when you redeem it for dollars. The problem is really just that tether was lying about how they were operating.
Correct, for the non-financial sector, "money" is currency in circulation (created by the government) and then liabilities of the financial sector (created by the private sector). This is true regardless of whether they are checking accounts, savings accounts, certificates of deposit, money market mutual funds, etc. It's all private money and we not only allow it but we subsidize and encourage it.
Private banks can only extend loans so much as they have the money already.
Yes, it's a juggling act: Person A still has $1000 on the ledger in their deposit even if the bank lends $800 of that to Person B, so if the people with deposits want to cash out all at the same time, and the bank can't pull back what they've lended out fast enough, you have big problems!
But they aren't just adding numbers to a cell in a spreadsheet without having the money to back it - a loan that can't be used to pay someone or to be turned into cash is useless. You can't just start a bank and issue yourself a thousand dollars into your own account and expect to be able to use it for anything. This would be closer to the credit card model - short term credit without taking deposits, making money on the repayment - but again, good luck issuing yourself your own credit card to buy a bunch of stuff with to "create money."
And they also aren't doing anything that couldn't be done with crypto!
> Yes, it's a juggling act: Person A still has $1000 on the ledger in their deposit even if the bank lends $800 of that to Person B
Fractional reserve banking isn't up-to-date with the modern banking system, where in many cases, like in the UK, and in the US as of 2020, there are no reserve requirements. [1]
> But they aren't just adding numbers to a cell in a spreadsheet without having the money to back it
I disagree; this is the reality. Banks don't have to wait for deposits to extend loans. When creating a loan involves novel financial instruments to hide or offload the loan's risk, this has caused massive bubbles, as in the 2008 mortgage crisis.
This credit they extend to customers is "broad money" that, while not being created by the central bank, is effectively the same, as it is the deposit for someone else, which can be withdrawn.
Lending, and the maintenance of the depository accounts where lent money not withdrawn in cash must end up, is much more tightly regulated than it was in the era of willy-nilly private currency issuance, as well as direct currency issuance itself being reserved for the State.
> Isn't this pretty much the description of every company?
For the most part, sure. But that's the parent's point, I think. Central banks are not companies, they are part of the public financial infrastructure of a nation (or, in the EU case, group of nations).
Actually... it's complicated. The Bank of England, for example, was nationalized only in 1946, and it remains technically a company which is owned by the state, not actually part of the government.
In the US, the Fed is... well, it's not a company, but it's also not not a company... or group of companies...
Yeah, the Bank of England even used to offer account services to employees after it was nationalized. Which would be scandalous if we found it in some dubious ex-Soviet republic today, albeit there maybe they're lending the Bank's President $10M with no real security and the Bank of England was offering employees mortgages and similar modest run-of-the-mill secured loans.
The UK owns a whole bunch of banks and entities that would need a banking license if they weren't owned by the government, of which only the Bank of England acts as a central bank, but there are also a bunch of commercial banks in (or at least operating in) the UK that are named after parts of the UK even though they're not owned by the government, including the Bank of Scotland.
To be fair, unlike Tether, the Bank of Scotland actually does hold actual cash worth the same as the notes they issue.
Also, although these banks have permission to issue notes (whereas if you went around issuing "bank notes" you'd likely get arrested) the notes aren't necessarily worth anything except in the sense that you can assume the Banks will give you Bank of England notes for them if it came to it since they're required to hold those.
They aren't legal tender (Scotland doesn't really bother having legal tender laws anyway) and retailers can choose not to accept them if they want. You won't have a problem exchanging them for tourist stuff in Edinburgh or buying a fish supper in Dundee, but good luck getting some random corner store owner down South in Cornwall or Essex to accept them - even though these notes are in some sense worth the same as Bank of England notes, there is no law requiring retailers to accept any notes and so they might just tell you to fuck off with your weird-looking money.
The decision-making body of the Federal Reserve System – the thing that sets monetary policy, among other things – is a government agency (the Board of Governors of the Federal Reserve.)
The rest of the system is, as you note, complicated, but the rest of the system doesn’t set monetary policy.
Isn't this pretty much the description of every company? I understand feduciary responsibilities blah blah, but if the company didn't think they could do both then they wouldn't be running the legitimate buisness. If it was started to intentionally dupe people that's an entirely different thing.