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Comment by awjr | Hacker News Reader

Isn't this just a specialised pawn shop? The more interesting thing is that the 'value' of the cheese goes up over two years so there is an incentive to purchase back the cheese, although I suspect the 'bank' sells the cheese on behalf of the farmer for a fee and writes off the loan and gives the farmer any profits.

I'm guessing a similar approach could be used for some hams but not sure if there are that many food products where there is relatively high value in very small amounts of space.

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You need to read up on futures contracts. That's essentially what's going on here, but the bank is providing a secure location for the product to mature, and given the nature of the product, that's a sensible step for all involved.

Why do you think its a futures contract? OP reads like it's a loan against collateral to me.

It's a futures contract because they don't yet have a finished product. Even after the wheels have been produced, the cheese hasn't matured yet, and they have no idea what the quality is going to be. That's why it's a futures contract rather than a loan against collateral.

It has the contango element of a future with an underlying that has higher storage costs than the value inflation rate, but, unlike a future, the asset already changes hand, hence it resembles more a collateralised loan.

Contango is the key element of a futures contract, at least in my opinion. The only real difference between this and, say, a grain future is that the nature of the product allows the farmer to deliver on the immature product than with many futures, and thus the bank has to take less of a risk while giving the same benefits to the farmer of a regular future. There's less fear that something disastrous will happen before the cheese matures because the bank can control that to a great extent, unlike a bad summer, which could ruin a grain harvest, rendering a grain future worthless.

It might works also for spirits where the more they age the more the value goes up.

Financing of these types of thing has been going on for centuries, the article mentioned that the cheese loans had been going on since the Medici era. Most of this type of business has been credit funded for centuries too.

That, or a mortgage of sorts. It's basically a loan using cheese as collateral, instead of a building. But with the extra added service of taking care of said house for you (to draw the analogy).

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