Hacker News Reader

Comment by helpme3 | Hacker News Reader

This is terrifying. If this, and similar ideas, gain adoption, this will undoubtedly lead to the next financial crisis.

From my understanding, JPMC wants to issue a new coin and make the market for that coin by buying the coin for $1. Then, they plan to use this coin for it's normal banking tasks, such as lending money, except they would use JPM Coins instead of dollars. By using this coin, they would be able to skirt their fractional reserve requirements. Of course, this coin only has value because of trust in JPMC. If this trust or breached, or if external economic events cause a large amount of JPM Coin to be sold, then this will effectively be a run on JPMC. Given JPMC's size and importance in the marketplace, the aftermath would not be pretty.

View on HN

Skirting fractional reserve requirements is unnecessary, and obviously not the real motivation for this move. The fractional reserve requirements are already so low as to present virtually no constraint on lending. In reality lending is limited mostly by lack of credit worthy borrowers.

I think lending environments are temporary. The current environment has a glut of reserves, but I don't think there's anything systemic about that. Wouldn't this be the best time for JPM to release a new currency, so that it has some runway to gain acceptance before the lending environment changes?

I think you might have misunderstood. JPM will not create a market for the coin or use it for lending. The coin will be 100% backed by deposits in client accounts and used to facilitate instantaneous transfers between clients in order to reduce settlement times (initially it will be utilised for dollar transfers with the possibility of extending it to other currencies and financial assets). Given it will be 1:1 backed by client deposits it cannot be used to skirt fractional reserve requirements (unless JPM changes the terms of issuance).

From JPMorgan’s Q&A on JPM Coin [0]:

> The JPM Coin isn’t money per se. It is a digital coin representing United States Dollars held in designated accounts at JPMorgan Chase N.A. In short, a JPM Coin always has a value equivalent to one U.S. dollar. When one client sends money to another over the blockchain, JPM Coins are transferred and instantaneously redeemed for the equivalent amount of U.S. dollars, reducing the typical settlement time.

[0] https://www.jpmorgan.com/global/news/digital-coin-payments

> unless JPM changes the terms of issuance

Is there any visibility/transparency on how JPM might change the terms of issuance in the future? If not, then the expected value of 1 JPM coin going forward doesn't always match the current face value of 1 JPM coin/1 U.S. dollar, no?

I'm interested to know what percentage in fees/opportunity costs JPM saves when shaving off settlement times by using JPM Coin; if it's the big real reason behind its conception or if there are other plans.

> skirt their fractional reserve requirements.

...wait you can just do that? Just declare a "thing" to equivalent but not identical by reference to a dollar and go around laws using dollars because you technically aren't using the dollar?

Yeah that's terrifying.

> ...wait you can just do that? Just declare a "thing" to equivalent but not identical by reference to a dollar and go around laws using dollars because you technically aren't using the dollar?

Yes, they're basically taking dollars out of demand deposit accounts and putting them into brokerage accounts. Demand deposit accounts are liquid, guaranteed with FDIC insurance, and the account holder is entitled to the funds at any time. JPM Coin is theoretically liquid and "guaranteed" by JPM in the form of a promise to purchase it for at least $1 (up until they can't of course) but from the article it seems the funds won't be immediately available to account holders:

> Purchases and redemptions may not always be immediate, but once converted to JPMCoin, transfers should be quick and error-free.

The benefit of JPM Coin for JPM is a quicker/cheaper way to facilitate transfers between and among their various legal entities while also reducing the bank entity's total deposits (which in turn reduces the bank's capital and reserve requirements).

The benefit of JPM Coin for JPM customers on the other hand, is not immediately obvious to me.

I mean for things like CDs and savings accounts, JPM Coin is irrelevant. I'm concerned more if JPM decides to use JPM Coin for higher-risk activities. What happens if they decide they would treat a supply of JPM Coin as a supply of USD, with the knowledge that if things go south, they could change the value of the pegged psuedo-currency and get a slap on the wrist?

Every bank could then conceivably be a central bank, except as a central bank that is profit-driven.

> Yeah that's terrifying.

Except they're not doing anything of the sort. They've created a stablecoin backed by their balance sheet. They plan to use it for reducing the friction on payments and payment like processes.

That's it pretty much. TBH if JPM were going to attempt a major violation of their regulatory constraints, I'd expect them not to publish it on their website.

Nope you can't, unless you can convince everyone else that "thing" is just as good, and can be exchanged for USD at any time, which it can't.

I mean I can't, but JPM might be able to. JPM's an organization with enough significance to the financial system that they (IMHO) could conceivably make people accept one truth that 1 JPM coin == 1 USD.

And it is. Until it isn't.

Best case scenario is that they convince people to treat their thing with value in their sandbox to reduce fees and improve performance for a specific business case (B-2-B payments for example). Or in the case of JPM Coin, they back it with deposits and no value trust is needed. Just limited application.

Think like Disney bucks, but a larger scale.

They aren't issuing loans with JPM Coins, because those coins would have to either be transferred into USD by the loanee or accepted as currency by the school, home seller, etc. Which won't happen.

> Of course, this coin only has value because of trust in JPMC

I would not trust JPMC but fiat money (dollars, euros, etc) only has value because of trust in governments.

"Fiat" is latin for "because I said so". I'm only half joking.

https://www.merriam-webster.com/dictionary/fiat

>I would not trust JPMC but fiat money (dollars, euros, etc) only has value because of trust in governments.

That's not really true. the value of a currency comes from what you can do with it. E.g. I think $20k is a lot of money because I know it is enough to buy a car. That has nothing to do with the government, only the market.

I'm sure Venezuelans agree with you. /s

Reply on news.ycombinator.com