Among others, the heads of the US Federal Reserve and the European Central Bank participated in a panel discussion that, for anyone who actually understands crypto, can only be described as hilarious.
Naturally they started with the old anti-crypto tropes, talking about “the lack of transparency” and how criminals use crypto.
These are completely laughable points. Criminals use iPhones, American Express, and JP Morgan Chase as well. Should we cancel those too?
And as for crypto’s lack of transparency, the opposite is true. Every Bitcoin transaction is traceable on the blockchain for the entire world to see.
Yet with every passing sentence, these bankers demonstrated that they know absolutely nothing about crypto… and quite possibly banking too.
At one point they slammed stablecoins that didn’t have a 1:1 backing; stablecoins are specialized tokens that represent, for example, 1 US dollar per token. So there is supposed to be at least one US dollar in reserve for every token in circulation.
Lately there have been a handful of high profile stable coins that didn’t have sufficient reserves. So their criticism is fair.
But this leads to an obvious question: if a 1 to 1 reserve standard for stable coins is so critical, why don’t we demand the same of our banking system?
Central Banks are among the most prominent regulators in banking. And they have completely condoned a fractional reserve system whereby commercial banks are only required to keep 10% (or less) in reserve.
In other words, these people are perfectly fine that commercial banks gamble most of their customers’ money on the latest investment fad of the day.
It’s fine to be outraged when a few stablecoins aren’t 100% reserved. But they should be equally outraged that commercial banks aren’t even 10% reserved.