[118383] in Cypherpunks
Re: b-money economics (fwd)
daemon@ATHENA.MIT.EDU (Steve Schear)
Sun Sep 26 15:29:24 1999
Message-Id: <4.1.19990926115056.046484c0@popserver.com21.com>
Date: Sun, 26 Sep 1999 12:06:50 -0700
To: Jim Choate <ravage@einstein.ssz.com>
From: Steve Schear <schear@lvcm.com>
Cc: cypherpunks@cyberpass.net
In-Reply-To: <199909252200.RAA27171@einstein.ssz.com>
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Reply-To: Steve Schear <schear@lvcm.com>
At 05:00 PM 9/25/99 -0500, you wrote:
>> Mints or third party foreign exchange services will probably do
>> most of the buying and selling. (Private foreign exchange is
>> inconvenient and high risk).
>
>Mints don't make profit, they're not a business.
Actually they do. Its called seigniorage. In 1997 the U.S. Mint made $40
billion: the difference between the face value and the cost of manufacture.
>Foreign exchanges don't MAKE money, they EXCHANGE it.
Actually they do. The bid-ask spread is different depending upon who you
are and how much you are exchanging in a single transaction. For those
exchanging values greater than about $1 million they get the narrow
inter-bank rate. Those exchanging progressively less get progressively
wider spreads, not infrequently paying spreads and fees totaling in excess
of 5% of the amount converted, when compared against the moer favorable
interbank rate. In the banking business these smaller transactions are
actually called nuissance transactions and treated appropriately. Money
center banks in the U.S. routinely make over 40% of their profits from the
foreign exchange desks.
>Exchanging one
>b-money token for another b-money token of equal value (w/ respect to the
>b-money token itself) as if they had different value will cause the market to
>collapse because of inflation. Currency exchange has the opportunity of
making
>a profit in only one of the two markets involved. If I exchang US $ for
German
>DM's the 'profit' is one way only and a result of the isolation of those two
>markets and the difference in percieved value based on differences in life
>style and resource availability.
Using the bid-ask spreads, discussed above, exhanges make money in both
directions.
--Steve
