Below a transcript of a conversation on banking by the team of The Crypto Universe while preparing the next blogpost about the history of money:
D:
I have heard many economists discuss the tale of the goldsmith and how that led to paper money. The goldsmith would have a vault and people would store their gold there and the goldsmith would issue a paper receipt which would be redeemable in gold. These receipts would then begin to circulate as money since it was safer and easier to carry a receipt than the physical gold. This would then lead to the creation of banking as the goldsmith realized that many people never came to take out their gold and would create loans by issuing receipts on the gold he held in reserve. It Is an apocryphal story but has some evidence of being true.
K:
Nice story. Actually the history of money is so interesting. I cannot imagine for example the Free banking Era in the US that every bank had it’s own currency. It’s also so interesting today’s fiat money has value... And everyone beleives in it😃.
J:
an analogy with D's story would be quite different with crypto though, since it's all digital and there is no "weight" to the mother currency, BTC (unlike gold to paper). Interesting how a similar idea is relatable though.
K:
Yeah that’s true.
D:
Each bank would back its currency with various amounts of gold. 80% reserve, 60% reserve, etc... The fed created the cartel they wanted with a 10% reserve requirement. Banks used to compete on how “sound” their money was. Like Pi-Tokens backing grade.
I actually wish we could go back to that sort of free banking principle. It would encourage more sound money practices.
K:
Yeah but there were several currencies that time which is not the best “idea”. Although since Bretton Woods the system is kind a ridiculous, now they print as much as they want.
D:
Right. Always true that when there is competition, some are better than others. But the competition encourages best practices and punishes wrongheaded ones. Now we have to trust that the central banks are looking out for the common good and not working to protect the banking class. The public choice view has a lot to say about that.
K:
Well this is true. Actually it’s parallel with today’s crypto market.
D:
Oh yeah. Very similar. I wonder if there was the tribalism back then as well.
My money is better than your shitcoin. lol.
Can you even tell the difference? This is the promo we are running next right?
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