Amazing article, Luca. Loved it. Thanks for it. Reading your text I saw no mention to the fact of the current traditional financial system works with fractional reserves, and if I understood it correctly, your New monetary triangle (CBDC or CBDC+stablecoin system) suggests that we would have a system that would be full collateralized by Central Bank money. what are your thoughts on this? And again, thx for the text. I love it. And also as a Cyclist too the introduction was just perfect. ;)
Thank you. Fully collateralised ultimately doesn't mean anything, because you can ascribe collateral value to anything. Value is a construct.
In this piece, I suggest Central Bank to be a liquidity stabiliser through other issuers, Commercial Banks and Protocols depending on the nature of the underwriting. Ultimately the monetary expansion will be done, as always, at the Commercial Bank/ Protocol level. The fact that Commercial banks do not take monopoly of deposits make this phase way more competitive and also hopefully lenders/ issuers way more focused on what they underwrite.
We are at the beginning, but we can really redesign finance in the next 50 years. And something tells me we will. Thanks for reading.
Thanks for answering Luca. Very kind of you. My reading is that eventually if the Central Banks continue to "save" all depositors and banks we will move into a non-fractional reserve banking architecture (moving to your new system), but I am not sure if this is the best way to move forward. I see your point on the non-monopoly of deposits by banks, which makes sense, as we could have an AAVE or MAKER Like protocols competing with banks. My point is more on the change from a fraction reserve bank system into a full reserve bank system. Also, dont know if you have followed the CBDC+stablecoin EVM compatible pilot the Brazilian Central Bank will run in the comming months, it addresses some of the points you mention on your text. Anyway, just somethings that came up after reading your great article/comment. Cheers
Thanks! "Fractional reserve" is something that only non-banking experts use. Maker does some sort of fractional reserving, simply you cannot see it because that bit is hidden behind the volatility of the underlying collateral.
I think ultimately CBDCs can be liquidity stabilisers, and can live jointly with Treasury Bonds of some sort as source of financing for the state - in stabilised form, because Treasury cannot really trust the whims of retail. Traditional banking is really inefficient, but especially now where risk free rate is way higher than the yield you get on deposits for so much more counterparty risk (and limited services) this is becoming evident.
I live in Brazil big chunk of my year so I am familiar. But beware, the problem in Brazil is that the creditworthiness of the Treasury is not risk free proxy at all, and for people the risk free anchor is the USD - so ultimately the Bank of Brazil is kind of a commercial bank of the US (ok, many will kill me for this but whatever!)
Thanks again for engaging, you found me in front of the pc and that made a good conversation!
Amazing article, Luca. Loved it. Thanks for it. Reading your text I saw no mention to the fact of the current traditional financial system works with fractional reserves, and if I understood it correctly, your New monetary triangle (CBDC or CBDC+stablecoin system) suggests that we would have a system that would be full collateralized by Central Bank money. what are your thoughts on this? And again, thx for the text. I love it. And also as a Cyclist too the introduction was just perfect. ;)
Thank you. Fully collateralised ultimately doesn't mean anything, because you can ascribe collateral value to anything. Value is a construct.
In this piece, I suggest Central Bank to be a liquidity stabiliser through other issuers, Commercial Banks and Protocols depending on the nature of the underwriting. Ultimately the monetary expansion will be done, as always, at the Commercial Bank/ Protocol level. The fact that Commercial banks do not take monopoly of deposits make this phase way more competitive and also hopefully lenders/ issuers way more focused on what they underwrite.
We are at the beginning, but we can really redesign finance in the next 50 years. And something tells me we will. Thanks for reading.
Thanks for answering Luca. Very kind of you. My reading is that eventually if the Central Banks continue to "save" all depositors and banks we will move into a non-fractional reserve banking architecture (moving to your new system), but I am not sure if this is the best way to move forward. I see your point on the non-monopoly of deposits by banks, which makes sense, as we could have an AAVE or MAKER Like protocols competing with banks. My point is more on the change from a fraction reserve bank system into a full reserve bank system. Also, dont know if you have followed the CBDC+stablecoin EVM compatible pilot the Brazilian Central Bank will run in the comming months, it addresses some of the points you mention on your text. Anyway, just somethings that came up after reading your great article/comment. Cheers
Thanks! "Fractional reserve" is something that only non-banking experts use. Maker does some sort of fractional reserving, simply you cannot see it because that bit is hidden behind the volatility of the underlying collateral.
I think ultimately CBDCs can be liquidity stabilisers, and can live jointly with Treasury Bonds of some sort as source of financing for the state - in stabilised form, because Treasury cannot really trust the whims of retail. Traditional banking is really inefficient, but especially now where risk free rate is way higher than the yield you get on deposits for so much more counterparty risk (and limited services) this is becoming evident.
I live in Brazil big chunk of my year so I am familiar. But beware, the problem in Brazil is that the creditworthiness of the Treasury is not risk free proxy at all, and for people the risk free anchor is the USD - so ultimately the Bank of Brazil is kind of a commercial bank of the US (ok, many will kill me for this but whatever!)
Thanks again for engaging, you found me in front of the pc and that made a good conversation!