> On 13 Apr 2001, at 6:29, Viking Coder wrote:
>
> > I don't understand why it's a bad thing to allow a 100% backed currency to
> > be used as the basis for a fractional reserve banking system.
>
> Because you introduce a new risk. The unit of account of the new digital
> currency system is then no longer backed 100% by an hard asset (gold) as
> soon as you use credit instruments to increase your broad money base.
>
> Claude
I still don't get it. The unit of account of the new digital currency
system is not e-gold. Why should it matter if some other non-related
entity uses e-gold as it's backing?
If Digigold has 10% of the e-gold in circulation and decides to value it's
currency at 20x it's reserve, then Digigold will have a total value 2x
that of e-gold. However, e-gold is still 100% backed.
It doesn't matter what people do with the currency. As long as the metal
in the vault equals, or exceeds, the metal in circulation, the currency is
100% backed.
Viking Coder
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