[Ekaros]

Or we could just go with CBDC give everyone government paid 0-interest account at central bank. With zero risk to lose the money. As it could truly be cash equivalent while being there.

Then if people want more they could get account somewhere else, but fully carry the risks from that.

[nabla9]

People and businesses still need loans.

When my business gets a new order, and needs $200,000 loan we don't have to buy the raw material, we need short loan of 1-2 months from the bank. The bank uses your deposits to make that loan.

[Ekaros]

So the people could instead give their money to a bank which then would offer various deals. Give money to 1 year and receive certain rate on it.

Point is that no one should be forced to take on risk if they are using a bank. Instead it should work like any other investment.

[colinmorelli]

Isn't this just exactly what the FDIC is? The vast majority of people do not have more than $250k in deposits sitting in cash. More than that sitting around in cash wouldn't be a prudent financial decision anyway, since putting that capital to work (even in very safe investments), would yield a better return.

Those that are below $250k are taking effectively zero risk. The worst case scenario is possibly losing access to funds for one business day before the FDIC returns deposits up to the coverage limit.

This is, of course, without playing games using sweep accounts or other instruments.

[rashkov]

How many businesses have less than 250k though? I’m surprised that the insured limit isn’t higher for businesses. Depositing your money in a bank doesn’t feel like it should be a risk/reward decision, like investing in the stock market

[colinmorelli]

This speaks to my latter comment. You can use sweep accounts to increase protection, money market accounts which have different risk profiles, T-bills backed by the USG, etc.

That said, it's all a tradeoff. Increasing FDIC insurance coverage means decreasing the yield on savings accounts, since banks fund FDIC and wouldn't take a cut in profits for it. Not sure what the optimal outcome here really is.

[wheelerof4te]

The bank uses a portion of everyone's deposit to make the loan. The rest is made out of thin air.

FIAT currency is proped up by private bussiness banks. Only a tiny fraction of the money supply is the M1, or base money (printed by FED).

[Armisael16]

All of the money the bank gives out comes from deposits or shareholder capital. The bank isn’t the mint; it isn’t allowed to print money.

The way that banks expand the money supply is by providing the illusion that all my money is there and available while at the same time being loaned out to someone else.

Fractional reserve banking means that banks don’t have all their deposits in hand. It does not mean that they invent cash for loans.

(The distinction here is less obvious in a digital world, but it’s quite clear if you think about how it would work if physical cash was used)