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Comment by sonnyblarney | Hacker News Reader

Actually, the US used to have any number of currencies in the 19th centuries and it was a mess.

Having a centralized currency is a reasonable thing, though the Fed is a private entity, it operates ultimately like other central banks.

The banks don't have any special power - if you want to open one, you can do that right now.

If they did have some special sauce, VC would be pouring it, and mostly, it's not.

Banks don't make their money or derive their power through the 'creation of money'.

FB's move into this arena is possibly more destabilizing than anything, hopefully, the opportunities will outweigh the risks.

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> Banks don't make their money or derive their power through the 'creation of money'.

A bank just opened and has $0 in the vault You give the bank $1000 The bank lends me $800

Your current bank balance = $1000 My current bank balance = $800 Total money in the bank = $1800

You might say that the money wasn't created because they can't afford to pay out $1800, but if for some reason at this point they need to pay back the $1000 they can ask another bank for a loan, and point to the $800 they're owed as collateral. On top of that, both the $1000 and the $800 would be insured against the failure of the bank by the federal government. This is a simplified example of course, but when the banking system is working normally it's hard to say that they don't make their profits on the creation of money.

Not sure that's correct though. For banks, deposits are liabilities, while assets are loans and cash-on-hand, which they are required to hold fractionally against the total amount of their deposits. In this example, the bank is holding $200, has assets of $800, and liabilities of $1000. Adding it up, you have ($200 + $800) - $1000 == $0.

In reality the bank can take your $1,000 and write loans for $9,000 or more. It’ll have net assets of whatever capital was paid in plus loans minus deposits.

This is why double accounting (?) was created. Too keep track of All the directions money flows. Your example is right, but only half-right (there are at the same time two debts to account for).

There are now decentralized systems that have monetary policy baked in, where the system can't become under-collateralized, see MakerDAO.

There's a really good Planet Money episode on the subject:

https://www.npr.org/sections/money/2012/12/07/166747693/epis...

The federal reserve does exactly that and is a bank.

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