Our roundtables provide the opportunity for a short, concentrated discussion of a particular design innovation or controversy. Projected topics include banks and money creation, state public banking, postal banking, the Libra currency project (Zuck Bucks), and open access Federal Reserve Accounts. An invited contribution from a key player or knowledgeable commentator kicks off the discussion with an entry that sets out the topic. We publish solicited responses by people with a variety of perspectives. We welcome your suggestions for topics and participants. Please send them to Dan Rohde, firstname.lastname@example.org.…
Commercial banks are, indisputably, at the center of credit allocation in virtually all modern economies. Astonishingly, however, it remains controversial exactly how banks expand the money supply.
According to one view, banks operate as intermediaries who move money from savers to borrowers. The basic idea is that banks extend the monetary base by lending out of accumulated funds in a reiterative way. In round 1: a bank takes a deposit, sets aside a reserve, lends on the money; round 2 – the money lands in another bank, that bank sets aside a reserve, lends on the money; round 3 – the process repeats. Money’s operation is effectively multiplied in the economy because banks transmit funds constantly from (passive) savers to (active) borrowers, thus distributing money across those hands. The system works because savers, who are content to leave their funds alone, are unlikely to demand more than the (respective) reserve amounts back from any round. Banks balance their flow of funds over time as borrowers repay their loans.
According to another view, commercial banking activity amounts to “money creation” rather than the pooling and transmission of existing funds. Banks fund the loans they make by issuing deposits (or promises-to-pay in the official unit of account) that are treated by the wider community as money, not only as credit. They have, in effect, immediate purchasing power. The constraint on banks’ lending capacity is not the sum of previously accumulated funds, but the banks’ ability to clear …
Upcoming December 5, 2019
Contributors to be announced
On October 10th, 2019, the SEC brought suit against Telegram, asserting that its $1.7 billion offering of Gram “tokens” violated federal securities laws. The same week, five large investors including Visa, Mastercard, Stripe, eBay, and Mercado Pago pulled out of Facebook’s virtual currency Libra, apparently taken aback by the fierce criticism leveled at Libra by politicians and regulators. These events were striking, occurring as they did against a baseline of official inaction, ambivalence, or accommodation of virtual currencies. It is an opportune moment to ask: What are virtual currencies – money, securities, or speculative assets? How do they relate to modern political communities and to the financial architecture that those states support? Why at this moment have governments chosen to crack down on virtual currencies?
The movement towards virtual currencies took off in 2008, when an anonymous person or group introduced Bitcoin. In the decade that followed, Etherium, Peercoin, and others offered similar products: digital assets created and maintained by a decentralized set of participants that can be traded for goods and services. Many users praised virtual currencies on the ground that they eliminated the role of law, the government, and/or the financial industry. According to the Bitcoin model, rules intended to operate mechanically control the production of virtual currencies and limit the quantity of virtual currency ultimately created. Exchange occurs according to a technology that Marco Iansite and Karim Lakhani describe as “an open, distributed ledger that …