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Comment by rvz | Hacker News Reader

> Whoa. Is this as awesome as it sounds?

No. A possible CBDC rails in the US is nothing to get excited about. Unless you want savings limits and expiry dates on your money.

> Is this akin to government-backed Venmo, or something?

Yes, but even worse.

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>Unless you want savings limits and expiry dates on your money.

I don't believe in saving limits or expiry dates in the sense of losing 100% of your money. But think about what impact limiting savings has on debt. In aggregate, there can only be as much debt as there are savings. This means if you want to limit debt in the economy, you are going to have to limit savings as well.

This is particularly relevant with debt brakes. A country with a debt brake but without a savings brake is going to run into a pretty fundamental limitation.

Savers can delay their spending decisions and this ultimately delays the ability to repay debts but since debtor's are at the mercy of lenders, we blame the debtor for the lenders tardiness.

Savings and debt in an economy are related, but not 1:1. See the money multiplier [1].

[1] https://en.m.wikipedia.org/wiki/Money_multiplier

Which, as the article says, is an inaccurate model of how modern monetary economies actually work. Bank loans create new money, they don't lend out existing deposits, and repayments destroy that money. Reserve requirements - in countries that have them - don't affect whether a loan can be made or not.

> Bank loans create new money, they don't lend out existing deposits

Do you mind clarifying? I agree banks create new money, but they do that by lending out existing deposits. A bank can’t lend out money that don’t have on their books…

It helps if you think about it in accounting terms where assets minus liabilities needs to add up to zero. When a bank makes a loan for $100 it adds $100 to the balance in your account - which is a $100 liability - and the $100 loan to its assets, balancing the books. Bank deposits aren't stores of physical cash, they're numbers in a ledger indicating what the bank owes you, and when you get a loan it means the bank owes you more money and not that it owes anybody else less money.

This Bank of England paper is by far the simplest and best explanation of the whole process, well worth a look even if just for the summary on the first page :)

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

Right, but I’m not tracking your previous statement that banks don’t lend out existing deposits. They do! Sometimes up to 100% of existing deposits! I suspect we’re saying the same thing though. For example, a bank might take a $100 deposit, keep $10, and loan out the additional $90. That creates $90 because they original depositor still has the $100 in their account.

They don't lend out deposits, if a bank had zero deposits it could still loan you that $100 just by adjusting your balance and adding the loan to their books. It's a subtle difference, and honestly, the BoE explainer I linked to is by far better at explaining this than I am.

Until you went to withdraw any of that money…

I get what you’re saying in theory, but show me a bank with 0 capital…

Also, this doesn’t negate the money multiplier. Assuming non-zero reserve requirements, the money multiplier is still an upper bound on the amount of money that can be created.

Yes, at the point where you try to withdraw actual cash the bank will have to use any cash it has as its assets, but nowadays the majority of transactions are digital and all that needs to happen is to adjust the balances of the payee and payer accordingly (potentially this can involve the interbank settlement network but the end result is the same).

Once you stop thinking of money in terms of tokens and bank deposits as those tokens getting stored in individual buckets - or there being any buckets at all - you can think of it in terms of assets and liabilities it makes sense. Also that commercial bank money (deposits) and central bank money (cash) are different because they are liabilities to different entities - commercial banks and the FED respectively.

Or more fundamentally, modern money is just I-O-Us being moved around.

https://cepr.org/voxeu/columns/banks-do-not-create-money-out...

https://www.federalreserve.gov/econres/feds/money-reserves-a...

Yes, I agree with all of this. But you’re still not going to have a bank with zero capital. We don’t have infinitely leveraged banks, for good reason :)

I’m still missing how this negates the money multiplier though. If banks are subject to reserve requirements, doesn’t the money multiplier still give a reasonable upper bound for the amount of money that can be created?

> Unless you want savings limits and expiry dates on your money.

Why is this something that's not already possible under the current settlement regime and is uniquely possible and likely to happen with a CBDC?

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