Just imagine what's going to happen when there's a bank run on Tether.
Tether FAQ: "Unfortunately, Tether has decided to stop serving U.S. individual and corporate customers altogether. As of January 1, 2018, no issuance or redeeming services will be available to these users."[1]
If there's a significant net outflow from Tether to USD, there's a good chance the whole thing comes apart.
Remember, with Tether, there is no potential upside. If you're not using it for something within days, don't keep any money in it.
Many of us in the haze of an enlightenment narrative in the 90s thought the web would empower through a decentralised model, and while it’s done that of course, it has also created powerful new sources of centralised power, monopolies, and walled gardens, that have challenged (and often won against) existing legal, societal, and political structures and norms.
It starts feeling a bit Neal Stephenson or Max Barry if you imagine a world in which monetary policy underpinning Western (and other) economies is further removed from existing political (especially democratic) levers.
Weber’s argument that states draw their legitimacy from a monopoly on the legitimate use of force is largely supported in Western economies by a monopoly on the legitimate exchange of value as well.
What does international trade, yet alone your annual tax return, look like in a world in which “govcoin” is just one (and a lower preferred one at that) of many currencies used day-to-day?
> What does international trade, yet alone your annual tax return, look like in a world in which “govcoin” is just one (and a lower preferred one at that) of many currencies used day-to-day?
That's already a reality for many companies doing international trade. Especially global special-purpose device producers from smaller countries. It's annoying with paperwork and dealing with "what price was actually paid at the time", but it's not new. They contract a team from X, do work in Y, source materials from Z, V, W, then pay local accounting and tax in their govcoin equivalent - which happens to be the local currency.
For day-to-day multiple local currencies check out the history of the Brazilian Real.
What do you think it means for the stability of nation states, either domestically or on an international scale, in such a world though?
It’s the increasing practicality of doing this (buy your breakfast in StarbucksCoin, your lunch in McCoin, and your groceries in WalCoin) that makes it more possible as a reality.
But how does a government have credibility and get taken seriously domestically if the currency they control is increasingly irrelevant day to day? How does the US continue to maintain leverage over energy costs? Etc.
I lived in Cambodia, which has this situation: the government currency is the Riel, roughly 4000R per 1USD, but everyone uses USD for anything over 1USD. Essentially, Riel notes are used as coins - if something is $4.50, you pay $5USD and get back 2000R in notes as change.
> But how does a government have credibility and get taken seriously domestically if the currency they control is increasingly irrelevant day to day?
The monopoly use of force is still a thing that demands respect.
Its unbelievable that someone stoles a $20,000 car and do 15 behind bars, yet here we have folks that embazzled $850,000,000 and AG will sit down with them to kibdly negotiate a plea deal and penalize them 4% of what they stole.
I mean seriously what the hell happened to Lady Justice??
But wouldn't you argue that a guy who stole a car and was peacefully caught with no damage to car, people or property, caused less damage than what $850,000,000 stolen from gullible investors did? I mean - wouldn't that turn off victims from ever entering any stock market, be it NASDAQ or even their 401k found, causing more damage to the US financial ecosystem?
The same of what happens in a regular bank run, cash conversions are delayed.
That being said, the comparison is not totally fair.
In the regular fiat banking system a bank run, the withdrawal of most deposits, destroys a bank because it fails to meet the reserves ratios mandated by the system.
In the case of Tether there no such requirement and the reserves are liquid enough to meet the withdrawal requests in about a month - at least 2 workdays days for cash-like reserves liquidations, 2 workdays days to wire to cash to exchanges. Non-cash-like reserves might take longer but 2 weeks should be enough. Since Tether reserves aren't that being on each asset class and overall market probably won't trigger their own reservers depreciation.
That being said the actual exchange rate on the exchanges will this happen will drop because people will panic sell and not wait for Tether company to meet their sell orders at 1USD.
The whole modern banking system is run in the same way. Private banks create money as loans, but they are backstopped by the Fed and there's the FDIC insurance up to a certain amount. Tether might also create money but there's big additional risk because it doesn't have access to the Fed.
Tether FAQ: "Unfortunately, Tether has decided to stop serving U.S. individual and corporate customers altogether. As of January 1, 2018, no issuance or redeeming services will be available to these users."[1]
If there's a significant net outflow from Tether to USD, there's a good chance the whole thing comes apart.
Remember, with Tether, there is no potential upside. If you're not using it for something within days, don't keep any money in it.
[1] https://tether.to/faqs/