This logic that the author uses here is incorrect. He goes from "U.S. dollar bank deposits" to separate "Well Fargo dollars and Chase dollars". You can't do that. They aren't separatable. Sure,...
U.S. dollar bank deposits (say Well Fargo dollars and Chase dollars) are fungible with each other. Rather than being independent, they are fused together as homogeneous and singular U.S. dollars.
This logic that the author uses here is incorrect. He goes from "U.S. dollar bank deposits" to separate "Well Fargo dollars and Chase dollars". You can't do that. They aren't separatable. Sure, the physical money is turned into something digital when you hand it to the bank, but it is still US dollars.
A Chase dollar is just as good as a Wells Fargo dollar.
Yes, because they aren't "Wells Fargo" and "Chase" dollars. They are US dollars, that happen to be kept at a 3rd party location (i.e. a bank). Just because they are stored somewhere doesn't change what they fundamentally (and legally) are.
I think you're missing their point because yeah, that's basically what they're saying. They have to make up some weird non real example because crypto stable coins do not map 1 to 1 to the actual...
I think you're missing their point because yeah, that's basically what they're saying.
They have to make up some weird non real example because crypto stable coins do not map 1 to 1 to the actual dollar. Even though USDT/C are both pegged to the USD, you cannot treat them like USD as they don't trade for exactly the same amount and thus cannot be used at all places.
It's not even that weird or made-up, because that's precisely how bank notes used to work. Each bank issued their own notes, the value of which was guaranteed by the issuing bank. There's still a...
It's not even that weird or made-up, because that's precisely how bank notes used to work. Each bank issued their own notes, the value of which was guaranteed by the issuing bank. There's still a holdover of that system in place in the individual mints listed on each printed US dollar.
The difference now is that the Federal Reserve is always the issuing bank, in part because individual bank notes left the door open to fraud and volatility–it was a response to inefficiency, in other words.
This isn't a completely nonsensical way of looking at currency, especially considering cryptocurrencies are themselves minted by separate authorities than the US Federal Reserve, and stablecoins have been developed with this fact in mind.
In other words, federal reserve notes no longer operate like the old bank note system, but stablecoin issuers pretend like they do. That's the distinction the author is trying to draw.
Edit: I phrased that last point poorly, to the point where I'm actually saying nearly the opposite of what I intended.
What I meant to say is that stablecoins operate like the old bank notes did, but they pretend they operate like modern federal reserve notes do.
But the fact that you consider them both US dollars is only made true by the fact that there is trust in the system and their mutual exchangeability. And to some extent by regulation like a...
But the fact that you consider them both US dollars is only made true by the fact that there is trust in the system and their mutual exchangeability. And to some extent by regulation like a deposit guarantee.
Clearly, when the level of trust decreases, such as in a bank run or a liquidity crisis, bank deposits lose their 1:1 exchange rate. There might be times when people would be willing to accept a haircut for moving from a failing bank to a more stable one, no?
When you deposit money in a bank at one level what you are doing is more akin to obtaining an "IOU" from the bank than putting money in a vault. At some level it's not correct to think of bank...
When you deposit money in a bank at one level what you are doing is more akin to obtaining an "IOU" from the bank than putting money in a vault. At some level it's not correct to think of bank deposits as "money" (transactions are kind shifting who owes who money rather than moving money from A to B) – but this is really painful, so the government has basically guaranteed all depositors to the hilt at this point.
This really makes no sense. A dollar is a Federal Reserve dollar, not a JP Morgan dollar (or whatever bank in the world). That's what makes it a currency. I have a hard time just understanding the...
This really makes no sense. A dollar is a Federal Reserve dollar, not a JP Morgan dollar (or whatever bank in the world). That's what makes it a currency.
I have a hard time just understanding the argument. Someone who has better luck?
Prior to the current centralized currency structure we have today, banks would issue certificates of deposit on the cash you had in their vaults, and would not necessarily respect other bank's...
Prior to the current centralized currency structure we have today, banks would issue certificates of deposit on the cash you had in their vaults, and would not necessarily respect other bank's "currency". That's the structure we have today with stablecoins; the government has not yet stepped in to have a "dollarcoin", and so you have different organizations with their own separate currencies.
If anyone would like to see what some of these bills looked like, there's an excerpt and pictures here (PDF). In the paper money collecting community they're apparently called "forbidden titles."...
Prior to the current centralized currency structure we have today, banks would issue certificates of deposit on the cash you had in their vaults...
If anyone would like to see what some of these bills looked like, there's an excerpt and pictures here (PDF). In the paper money collecting community they're apparently called "forbidden titles." (I came across this link last week and hope this is a good opportunity to share it.)
When you have a bank account at a chase bank, though, you don’t have federal reserve dollars. You have bits in a chase database, that they promise can be exchanged 1-1 for federal reserve dollars.
When you have a bank account at a chase bank, though, you don’t have federal reserve dollars. You have bits in a chase database, that they promise can be exchanged 1-1 for federal reserve dollars.
That's the point? A dollar is a dollar. USDC is NOT a dollar, even though it's pegged to the dollar. USDT is NOT a dollar even though it's pegged to the dollar. Some places do not accept USDC,...
That's the point?
A dollar is a dollar.
USDC is NOT a dollar, even though it's pegged to the dollar. USDT is NOT a dollar even though it's pegged to the dollar.
Some places do not accept USDC, others do not accept USDT. Both trade at ever so slightly different values, which matter in very large bulk transactions.
The whole thing is pointing out how people think that stable coins are the same as cash, but they really aren't, and pointing out how network effects are keeping tether (a fucking nightmare waiting to happen) at the top spot of crypto liquidity.
From the article: (But don't payment systems complicate this? Merchants don't necessarily accept all credit cards, and you will get different amounts of cash back depending on which credit card...
From the article:
The reason behind this difference is that U.S. banks cooperate with each other by accepting competitor's money at par on behalf of their customers. For instance, I can take a Wells Fargo check to my Chase branch and Chase will accept it 1:1 even though it represents a competing bank's dollar. Or I can send an ACH payment directly from Wells Fargo to Chase, and Chase will accept that Wells Fargo dollar at par and convert it into a Chase dollar for me.
The effect of this reciprocal acceptance is that all U.S. banking dollars are tightly knit together, or interchangeable. A fungible standard has been created.
I can't perform these same actions with stablecoins. I can't send 100 USDC to Tether to be converted into 100 USDt, nor send 100 USDt to Circle, which issues USDC, to be converted into 100 USDC. Stablecoins issuers are loners. They've chosen to avoid banding together to weave a unified U.S dollar stablecoin standard.
(But don't payment systems complicate this? Merchants don't necessarily accept all credit cards, and you will get different amounts of cash back depending on which credit card you use. It's not really true that merchants charge you the same price regardless of how you pay.)
Credit Cards aren't the same as "banking dollars" so you can't mix in cash back rewards, etc. (which is just your CC company/bank giving you a tip for using their card instead of another.)
Credit Cards aren't the same as "banking dollars" so you can't mix in cash back rewards, etc. (which is just your CC company/bank giving you a tip for using their card instead of another.)
Credit card usage rewards aren't really a tip. They're refunding you a small percentage of the processing fee that the credit card company charges to merchants who utilize their payment processing...
Credit card usage rewards aren't really a tip. They're refunding you a small percentage of the processing fee that the credit card company charges to merchants who utilize their payment processing services (and those merchants, who, in run, raised their prices on you by a minimum of the fee they are charged).
Consumers are the losers. Credit card rewards are just helping you lose a little less.
I wouldn't exactly argue that I'm losing as a consumer who uses credit cards, since they do offer me significant benefits. I find them so helpful that it is to the point that even cards with a...
Consumers are the losers. Credit card rewards are just helping you lose a little less.
I wouldn't exactly argue that I'm losing as a consumer who uses credit cards, since they do offer me significant benefits. I find them so helpful that it is to the point that even cards with a yearly fee can make sense for some individuals. I don't mean to sound like an advertisement, but I also feel like my comment is just begging to be asked for elaboration with out it, so here's a few of the benefits I see to my credit card just off the top of my head:
A monthly statement that I can review far more easily than I can cash transactions,
Protection for disputes on charges be it from fraud, or a mistake by the merchant.
An opportunity to establish credit history, which can help us get loans.
No longer have to carry large sums of cash on us at all times.
No longer need to go to an ATM.
No need to carry a debit card on us (which is a far more risky type of card to have stolen).
I would argue that a brokerage like Schwab with a psuedo-bank account would be far better. You can get HYSA style returns using SGOV/BOXX (depending on whether you think you'll need to sell within...
I would argue that a brokerage like Schwab with a psuedo-bank account would be far better.
You can get HYSA style returns using SGOV/BOXX (depending on whether you think you'll need to sell within a month or after for cash), and then stick the rest in SPY, QQQ (VGT?), and SCHD for returns that will far outweigh what you get in credit card rewards.
In an emergency you could even use margin like a lower APR credit card, although I wouldn't really recommend it.
The only advantage I see is creating a credit history, in which case you could just get a card to put your YT premium subscription or w/e on and auto pay it every month. You could even buy enough JEPQ/JEPI to cover your subscriptions with dividends every month and literally never have to worry about setting aside money for card payments, just automate everything.
That's a good idea. Fidelity has a credit card product that does exactly this with 2% rewards on all purchases. They also provide a bonus for essentially having your credit card rewards, to...
I would argue that a brokerage like Schwab with a psuedo-bank account would be far better.
That's a good idea. Fidelity has a credit card product that does exactly this with 2% rewards on all purchases. They also provide a bonus for essentially having your credit card rewards, to paraphrase, direct deposited into a special money-market account.
I think it's a good way to squirrel away some money for people who enjoy apps like Acorn or whatever that does savings deposits based on rounding off your purchases.
Except you're paying that service fee for access, convenience, and security. "Free" credit is still relatively recent, which is why there are still cards you explicitly pay to have access to the...
Except you're paying that service fee for access, convenience, and security. "Free" credit is still relatively recent, which is why there are still cards you explicitly pay to have access to the better deals. Dealing purely with cash/debit it can often necessitate a small claims court filing if there are issues.
The 'rewards' are like loyalty cards at a coffee shop. They're a reason to use that card over a competitor, even if the only difference is the number of points you have.
They're not really a tip, no, but they're an incentive from the company to use their card instead of others. A "tip" is as useful a way to describe that as anything else. Use the language you...
They're not really a tip, no, but they're an incentive from the company to use their card instead of others. A "tip" is as useful a way to describe that as anything else. Use the language you prefer.
Either way they're not that useful when talking about banking dollars
Another way to think of it is that using a credit card gets you a discount from the merchant. The credit card processors take some of it for themselves and give the rest to you. So by default...
Another way to think of it is that using a credit card gets you a discount from the merchant. The credit card processors take some of it for themselves and give the rest to you. So by default you're still better off. (Unless there's a cash discount.)
Where does the money come from? It reduces the merchant's profit margin, but so does any other marketing expense. It's worth it to them if it increases sales.
For credit cards, consumers likely think most about their benefits: delayed
payment—“buy now, pay later”—and the rewards earned—cash back, frequent flier miles,
or other enticements. What most consumers do not know is that their decision to pay by
credit card involves merchant fees, retail price increases, a nontrivial transfer of income from
cash to card payers, and consequently a transfer from low-income to high-income consumers.
In contrast, the typical merchant is acutely aware of the ramifications of his customers’
decisions to pay with credit cards. For the privilege of accepting credit cards, U.S. merchants
pay banks a fee that is proportional to the dollar value of the sale. The merchant’s bank
then pays a proportional interchange fee to the consumer’s credit card bank.1 Naturally,
merchants seek to pass the merchant fee to their customers. Merchants may want to recoup
the merchant fee only from consumers who pay by credit card. In practice, however, credit
card companies impose a “no-surcharge rule” (NSR) that prohibits U.S. merchants from
doing so, and most merchants are reluctant to give cash discounts.2 Instead, merchants
mark up their retail prices for all consumers by enough to recoup the merchant fees from
credit card sales.
The no surcharge rule does not consistently get enforced anymore. I'm not sure if there's been actual policy change But I've seen multiple reports of people actually reporting businesses to the...
The no surcharge rule does not consistently get enforced anymore. I'm not sure if there's been actual policy change But I've seen multiple reports of people actually reporting businesses to the credit card processors and nothing being done
I don't deny that the document I linked is 15 years old (what's up, 2010...). But I'm not inclined to trust businesses that prey on the poor with usurious rates. Sure, the well-off and...
I don't deny that the document I linked is 15 years old (what's up, 2010...).
But I'm not inclined to trust businesses that prey on the poor with usurious rates.
Sure, the well-off and well-educated can and do benefit from credit cards. And rewards are a nice way to slightly reduce the collective costs we as a society pay the payment processor.
Er, I'm not suggesting you trust anyone, just sharing that I've seen plenty of surcharges in recent years, as well as minimums and those rules seem unenforced at least. I'm not advocating for...
Er, I'm not suggesting you trust anyone, just sharing that I've seen plenty of surcharges in recent years, as well as minimums and those rules seem unenforced at least.
I'm not advocating for credit cards here, nor against, just sharing
ETA: Some states have laws that limit surcharges so that's also a thing.
Yes, if shoppers who pay by credit card are getting a discount, then that means they're getting a better deal than other buyers who pay cash. There are many forms of price discrimination, and this...
Yes, if shoppers who pay by credit card are getting a discount, then that means they're getting a better deal than other buyers who pay cash. There are many forms of price discrimination, and this is one of them. Other ways are coupons, discount codes, loyalty programs, and grocery store discount cards. They reward frequent shoppers and those who are more diligent about getting a lower price.
This logic that the author uses here is incorrect. He goes from "U.S. dollar bank deposits" to separate "Well Fargo dollars and Chase dollars". You can't do that. They aren't separatable. Sure, the physical money is turned into something digital when you hand it to the bank, but it is still US dollars.
Yes, because they aren't "Wells Fargo" and "Chase" dollars. They are US dollars, that happen to be kept at a 3rd party location (i.e. a bank). Just because they are stored somewhere doesn't change what they fundamentally (and legally) are.
I think you're missing their point because yeah, that's basically what they're saying.
They have to make up some weird non real example because crypto stable coins do not map 1 to 1 to the actual dollar. Even though USDT/C are both pegged to the USD, you cannot treat them like USD as they don't trade for exactly the same amount and thus cannot be used at all places.
It's not even that weird or made-up, because that's precisely how bank notes used to work. Each bank issued their own notes, the value of which was guaranteed by the issuing bank. There's still a holdover of that system in place in the individual mints listed on each printed US dollar.
The difference now is that the Federal Reserve is always the issuing bank, in part because individual bank notes left the door open to fraud and volatility–it was a response to inefficiency, in other words.
This isn't a completely nonsensical way of looking at currency, especially considering cryptocurrencies are themselves minted by separate authorities than the US Federal Reserve, and stablecoins have been developed with this fact in mind.
In other words, federal reserve notes no longer operate like the old bank note system, but stablecoin issuers pretend like they do. That's the distinction the author is trying to draw.
Edit: I phrased that last point poorly, to the point where I'm actually saying nearly the opposite of what I intended.
What I meant to say is that stablecoins operate like the old bank notes did, but they pretend they operate like modern federal reserve notes do.
But the fact that you consider them both US dollars is only made true by the fact that there is trust in the system and their mutual exchangeability. And to some extent by regulation like a deposit guarantee.
Clearly, when the level of trust decreases, such as in a bank run or a liquidity crisis, bank deposits lose their 1:1 exchange rate. There might be times when people would be willing to accept a haircut for moving from a failing bank to a more stable one, no?
When you deposit money in a bank at one level what you are doing is more akin to obtaining an "IOU" from the bank than putting money in a vault. At some level it's not correct to think of bank deposits as "money" (transactions are kind shifting who owes who money rather than moving money from A to B) – but this is really painful, so the government has basically guaranteed all depositors to the hilt at this point.
This really makes no sense. A dollar is a Federal Reserve dollar, not a JP Morgan dollar (or whatever bank in the world). That's what makes it a currency.
I have a hard time just understanding the argument. Someone who has better luck?
Prior to the current centralized currency structure we have today, banks would issue certificates of deposit on the cash you had in their vaults, and would not necessarily respect other bank's "currency". That's the structure we have today with stablecoins; the government has not yet stepped in to have a "dollarcoin", and so you have different organizations with their own separate currencies.
If anyone would like to see what some of these bills looked like, there's an excerpt and pictures here (PDF). In the paper money collecting community they're apparently called "forbidden titles." (I came across this link last week and hope this is a good opportunity to share it.)
When you have a bank account at a chase bank, though, you don’t have federal reserve dollars. You have bits in a chase database, that they promise can be exchanged 1-1 for federal reserve dollars.
It's more that the FDIC says they can be exchanged for Federal Reserve dollars.
That's the point?
A dollar is a dollar.
USDC is NOT a dollar, even though it's pegged to the dollar. USDT is NOT a dollar even though it's pegged to the dollar.
Some places do not accept USDC, others do not accept USDT. Both trade at ever so slightly different values, which matter in very large bulk transactions.
The whole thing is pointing out how people think that stable coins are the same as cash, but they really aren't, and pointing out how network effects are keeping tether (a fucking nightmare waiting to happen) at the top spot of crypto liquidity.
From the article:
(But don't payment systems complicate this? Merchants don't necessarily accept all credit cards, and you will get different amounts of cash back depending on which credit card you use. It's not really true that merchants charge you the same price regardless of how you pay.)
Credit Cards aren't the same as "banking dollars" so you can't mix in cash back rewards, etc. (which is just your CC company/bank giving you a tip for using their card instead of another.)
Credit card usage rewards aren't really a tip. They're refunding you a small percentage of the processing fee that the credit card company charges to merchants who utilize their payment processing services (and those merchants, who, in run, raised their prices on you by a minimum of the fee they are charged).
Consumers are the losers. Credit card rewards are just helping you lose a little less.
I wouldn't exactly argue that I'm losing as a consumer who uses credit cards, since they do offer me significant benefits. I find them so helpful that it is to the point that even cards with a yearly fee can make sense for some individuals. I don't mean to sound like an advertisement, but I also feel like my comment is just begging to be asked for elaboration with out it, so here's a few of the benefits I see to my credit card just off the top of my head:
I would argue that a brokerage like Schwab with a psuedo-bank account would be far better.
You can get HYSA style returns using SGOV/BOXX (depending on whether you think you'll need to sell within a month or after for cash), and then stick the rest in SPY, QQQ (VGT?), and SCHD for returns that will far outweigh what you get in credit card rewards.
In an emergency you could even use margin like a lower APR credit card, although I wouldn't really recommend it.
The only advantage I see is creating a credit history, in which case you could just get a card to put your YT premium subscription or w/e on and auto pay it every month. You could even buy enough JEPQ/JEPI to cover your subscriptions with dividends every month and literally never have to worry about setting aside money for card payments, just automate everything.
That's a good idea. Fidelity has a credit card product that does exactly this with 2% rewards on all purchases. They also provide a bonus for essentially having your credit card rewards, to paraphrase, direct deposited into a special money-market account.
I think it's a good way to squirrel away some money for people who enjoy apps like Acorn or whatever that does savings deposits based on rounding off your purchases.
Except you're paying that service fee for access, convenience, and security. "Free" credit is still relatively recent, which is why there are still cards you explicitly pay to have access to the better deals. Dealing purely with cash/debit it can often necessitate a small claims court filing if there are issues.
The 'rewards' are like loyalty cards at a coffee shop. They're a reason to use that card over a competitor, even if the only difference is the number of points you have.
They're not really a tip, no, but they're an incentive from the company to use their card instead of others. A "tip" is as useful a way to describe that as anything else. Use the language you prefer.
Either way they're not that useful when talking about banking dollars
Another way to think of it is that using a credit card gets you a discount from the merchant. The credit card processors take some of it for themselves and give the rest to you. So by default you're still better off. (Unless there's a cash discount.)
Where does the money come from? It reduces the merchant's profit margin, but so does any other marketing expense. It's worth it to them if it increases sales.
Source: https://www.bostonfed.org/-/media/Documents/Workingpapers/PDF/ppdp1003.pdf
The no surcharge rule does not consistently get enforced anymore. I'm not sure if there's been actual policy change But I've seen multiple reports of people actually reporting businesses to the credit card processors and nothing being done
I don't deny that the document I linked is 15 years old (what's up, 2010...).
But I'm not inclined to trust businesses that prey on the poor with usurious rates.
Sure, the well-off and well-educated can and do benefit from credit cards. And rewards are a nice way to slightly reduce the collective costs we as a society pay the payment processor.
Er, I'm not suggesting you trust anyone, just sharing that I've seen plenty of surcharges in recent years, as well as minimums and those rules seem unenforced at least.
I'm not advocating for credit cards here, nor against, just sharing
ETA: Some states have laws that limit surcharges so that's also a thing.
Yes, if shoppers who pay by credit card are getting a discount, then that means they're getting a better deal than other buyers who pay cash. There are many forms of price discrimination, and this is one of them. Other ways are coupons, discount codes, loyalty programs, and grocery store discount cards. They reward frequent shoppers and those who are more diligent about getting a lower price.