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I'm pretty sure most people here understand how fractional banking works. Tether isn't a bank, it's claiming to be a currency, and not only that but one that is fully backed by the reserves of their US dollars.

This is like a government claiming they lost their most sovereign currency and have no idea where it went.

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Now, the USD is the most trustworthy fiat currency on the planet, but it's a little (ironic? don't know) interesting the USD in turn is also a scheme of sorts. Albeit with a very powerful guarantor. But as others have said here, the banks don't hold funds for all their accounts. If each Tether was backed not only by funds in a bank, but actual funds at the Fed, that would be a true 1:1 backing.

https://www.econlib.org/who-should-be-allowed-to-deposit-mon...

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