As a comparison, USDC reserves are 100% backed by US dollars held in custody accounts, currently 9.3B.
https://www.centre.io/hubfs/pdfs/attestation/grant-thorton_c...
https://www.centre.io/hubfs/pdfs/attestation/grant-thorton_c...
"US Dollars held in custody accounts are the total balances in accounts held by the Company at federally insured US depository institutions and in approved investments on behalf of the USDC holders at the Report Date."
> Circle may also invest these fiat funds in highly-liquid, AAA-rated fixed income securities.
I wrote about this here: https://omarabid.com/usd-stable-coins
Only Gemini USD is fully backed by US treasuries. Everyone else is using this money to play roulette.
In reality, it comes down to market makers and market adoption/liquidity. That's why Tether could keep the beg at 1:1 despite having very little liquid cash. Liquidity will come from investors, and actually the more the better. Smaller fish like GUSD will not have that much interest from market makers.
The notion of counter-party risk is understood by a tiny fraction of the folks who participate in finance.
Also, what do you mean "cash"? Printed bills? Deposits in commercial banks' checking accounts? Would savings accounts count too (they can be frozen for some amount of days)? Deposits in Fed accounts?
And it's not going to get any better.
What sad times we live in.
The Federal Reserve didn't approve them to do that, because they were worried that it could "destabilize the financial system."
If the money just sits there in a bank account and rots for all eternity you get unemployment and deflation.
The solution to this problem has been to loan out money so that someone else invests the money on your behalf. Inflation exists as an incentive to invest your money and since future incomes are greater (thanks to inflation) it is not very difficult for the borrower to pay the loan back plus some.
Investing doesn't make sense if you have deflation. You can just sit on the money and get rich by on the backs of others. A growing unemployment rate is unavoidable. To maintain stability you would somehow have to get rid of all the useless people or make them work for goods instead of money.
The deposit rate that customers expect is higher than the rate they would get for storing liquidity with the fed so their spread is already negative. That means there already isn't anything for them to "take a few basis points for themselves" out of.
The Fed pays 10bps IOER or IORR rates https://www.federalreserve.gov/monetarypolicy/reqresbalances...
CDs are paying about 45bps eg https://www.salliemae.com/banking/certificates-of-deposit/?d...
So on a gross basis this plan already loses them 35bps before any costs they have themselves. If they actually planned to do this and the fed didn't approve the plan, it's because it's not economically viable not because it somehow posed a threat to the system.
> The Fed raises three main objections. 3 The first is macroeconomic: The Fed worries that narrow banks could mess with the implementation of monetary policy, because if they succeed they will keep a lot of money at the Fed, increasing the size of its balance sheet...
> Second, it worries that narrow banks will take funding away from regular banks, making it harder for those banks to trade stocks and bonds (a business largely funded by repo), and maybe even making it harder to make loans...
> Third, the Fed worries that having too safe a bank would be bad for financial stability: In times of stress, everyone will flee from the regular banks to the super-safe narrow banks, which will have the effect of bringing down the regular banks
https://www.bloomberg.com/opinion/articles/2019-03-08/the-fe...
To me, there are only a limited set of options:
1. the peg fails
2. the custody accounts are switched to riskier assets - with or without knowledge of USDC holders. This, of course, has implications to the "stablecoin" status. One could even argue that USDC becomes a de facto fractional reserve bank at this point.
If you ever thought govt-backed cryptos and centralized tokens like USDC were a good idea, ask yourself this:
Could a stack of greenbacks ever be "blacklisted" (I mean, people have certainly tried with various "tricks")?
One of the nice property of money as we've known it so far was fungibility.
With govt-backed (e-dollar) and/or centralized cryptos (USDC), much like the woolly mammoth the whole notion will soon be extinct.
Decentralized ZKP-powered coins FTW.
Yes. Bill counters at banks capture serial numbers and associate them with your account when you make a cash deposit. Each night the serials are sent to a MCP database where they are checked against a hotlist entered by law enforcement across the country. The bank won't reject the bills on the spot, but depositing too many of the wrong ones will earn you a visit.
Tracing cash bills is a complicated affair beyond a couple of transactional hops.
Deposit a whole stack from a bank robbery and find out.
Copying from an older comment of mine (https://news.ycombinator.com/item?id=26812598):
I saw something like this happen when I was younger (this was pre-web, in the 80s or 90s, so I unfortunately haven't been able to find any online references to it): there was a big bank heist, and the stolen banknotes were new notes which hadn't been put into circulation yet. The ranges of their serial numbers were widely distributed by the press, and for instance cashiers at supermarkets were supposed to verify whether the serial numbers of the banknotes they received matched any of these ranges (since the banknotes hadn't been put into circulation, they were treated similar to counterfeit money: they officially didn't have any value). The country's currency has changed since then (it was the hyperinflation times), so that whole banknote series is no longer valid nowadays.
If Hawaii fell, or a large stash of notes intended for overseas use were diverted, they could easily demonetize them.
The reason it's not done on a more precise level is probably a UX issue-- you can easily remember "The $10 notes with yellow seals are void" but roadcasting and getting understanding of thousands of "$10 note Series 2024 serial number QL34567846A is void" is infeasible.