Deflationary money is a Good Thing

Deflationary money is a Good Thing

Original Postby RubenSomsen

Posted on: August 28, 2022 08:45 UTC

The discussion delves into the complexities of the current monetary system, highlighting how a significant portion of money, over 90%, is effectively in circulation through loans due to banks operating on a fractional reserve basis.

This practice underpins the financial system but also introduces dependencies on governmental safeguards against bank insolvency. Central to this dialogue is the recognition of the government's role as a lender of last resort, a critical mechanism that mitigates the risk associated with banking operations by ensuring liquidity during financial crises.

Furthermore, the conversation touches upon the potential consequences of decentralizing this safety net, suggesting that without such government-backed insurance, the value and stability of currency held or issued by different banks could diverge significantly. This divergence could lead to inefficiencies and complexities within the financial ecosystem, a scenario many would prefer to avoid. The dialogue suggests that while shifting away from government intervention might introduce a level of risk differentiation among banks, there's an acknowledgment that the framework for governmental support in the form of being the lender of last resort need not be entirely discarded.

In essence, the exchange reflects on the delicate balance between the autonomy of financial institutions and the necessity for a government safety net to ensure the overall stability and uniformity of the monetary system.