User:Atheros

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Revision as of 09:59, 7 November 2011 by PeterSurda (talk | contribs)
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FRB does require substitutes. It is logically impossible to conduct FRB without substitutes.

With fiat dollars, the base money are the reserves the commercial banks have with the central bank, and the substitutes are the account balances that the commercial banks provide to their customers. Only the central bank can create the reserves.

With gold, banks take in gold bullion or coins, and provide either bank notes, account balances or cheques as substitutes. The banks in case of gold money cannot create more gold any more than in case of fiat money commercial banks cannot create more reserves.

It all boils down to substitutes, which are necessary with gold/fiat, but not necessary with Bitcoin.

For an explanation on how FRB works, please consult Selgin's Theory of Free Banking: http://files.libertyfund.org/files/2307/Selgin_1544_EBk_v5.1.pdf

Please reconsider putting my edit back.

PeterSurda 09:59, 7 November 2011 (GMT)