Comment by bko | Hacker News Reader

Comment by bko | Hacker News Reader

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Full reserve:

> By fully backing each coin with a set of stable and liquid assets (described later) and by working with a competitive group of exchanges and other liquidity providers, users can have confidence that they will be able to sell any Libra coin at or close to the value of the reserve at any time. [0]

They'll fund expenses from the return of the investments.

> How will the reserve be invested? Users of Libra do not receive a return from the reserve. The reserve will be invested in low-risk assets that will yield interest over time. The revenue from this interest will first go to support the operating expenses of the association — to fund investments in the growth and development of the ecosystem, grants to nonprofit and multilateral organizations, engineering research, etc. [0]

Brokerages do this as well and earn most of their money this way (people keep cash in brokerage account and brokerage invests and earns interest).

> 57% of Schwab’s revenues are from net interest. The firm could literally give away every other service; discount the mutual fund fees to zero, do away with commissions, etc etc, and they would still be profitable. [1]

[0] https://libra.org/en-US/about-currency-reserve/#the_reserve

[1] https://www.kalzumeus.com/2019/6/26/how-brokerages-make-mone...

That doesn't sound like a full reserve though as its not 100% cash. It says right there that its partially invested in risky assets. Whether they're low risk is just an opinion.

But even assuming it was a full reserve, I don't think its fundamentally different enough to be allowed to skirt the existing laws.

Fair point, its not cash. But generally in banking, cash and cash-like products are equivalent. I think they'll make public the actual investment breakdown.

It's different enough from banks because its matched one for one with some asset. It's essentially a passthrough investment. The reason banks are so highly regulated is that they participate in fractional reserve banking where they take in deposits and invest in highly risky assets. That and deposits are guaranteed by FDIC or similar agencies.

Should Starbucks be regulated as a bank because they let you prepay for a cup of coffee?

>Should Starbucks be regulated as a bank because they let you prepay for a cup of coffee?

Well this might just be where we simply disagree but I would say yes. Those Starbucks cards are often used as a way to launder money from country to country. You can't transfer balances from one individual to another as far as I'm aware so it's not nearly as problematic, though.

> But generally in banking, cash and cash-like products are equivalent.

Except it's not. Well, maybe it is "generally", but fractional reserves in particular are, by definition, central bank money, and only central bank money. So, strictly speaking, cash or central bank deposits. Not bonds, not loans, not equity. Only central bank money.

> It's different enough from banks because its matched one for one with some asset.

In other words: It is exactly like a bank. Every loan any bank ever makes is matched with some asset, if it weren't, they'd be called gifts and not loans.

> The reason banks are so highly regulated is that they participate in fractional reserve banking where they take in deposits and invest in highly risky assets.

That doesn't even make sense. How would the fact that a bank has (supposedly) lower reserve requirements mean that "regulation" is required more? The whole point of regulation and oversight is to make sure that the minimum reserve is there, not that there isn't too much reserve, and if a bank supposedly had a 100% reserve requirement (because that is what they promise their customers, say), that would , if anything, make it even more important to check that that is actually true.

The whole reason why all of that regulation and oversight exists is not because banks have promised their customers too little, but because banks over and over and over told their customers one thing, but actually did something completely different, and ususally that means something a lot more risky.

The fact that Facebook promises to do something really good is exactly zero reason to do away with mechanisms that exist to make sure that promises are held.

> Every loan any bank ever makes is matched with some asset.

This was true 200 years ago not anymore. https://en.m.wikipedia.org/wiki/Money_creation#Credit_theory...

Only 3% need to be matched IIRC

Quoting from the section that you linked to:

> When a bank issues a loan of $1000 to a customer, they debit the customer's loan account with $1000 and at the same time they credit the customer's deposit account with $1000, ready for using. The bank now has a new asset of $1000 and a new liability of $1000.

So ... do you have a source that supports your claim rather than mine?

> Should Starbucks be regulated as a bank because they let you prepay for a cup of coffee?

In Germany, you might actually need a permit from the financial regulation (BaFin) if you offer gift or prepaid cards, at least if you store the value online (and maybe some other conditions).

> Should Starbucks be regulated as a bank because they let you prepay for a cup of coffee?

Yes. Including how the funds in the pre-paid card are managed and invested, and certainly including all the rules about when the user is allowed to reclaim their money.

> How will the reserve be invested? Users of Libra do not receive a return from the reserve. The reserve will be invested in low-risk assets that will yield interest over time. The revenue from this interest will first go to support the operating expenses of the association — to fund investments in the growth and development of the ecosystem, grants to nonprofit and multilateral organizations, engineering research, etc. [0]

If I were a country's finance minister, this single paragraph would be enough to get me to say "no".

This currency generates returns, which we don't see, and we don't control the allocation of. basically, it's slowly bleeding money out of the countries that use it, though accumulation of capital and capital investing.

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