original posts
https://www.reddit.com/r/Bitcoin/comments/6rr6ph/just_a_quick_reminder_why_bitcoin_was_invented_in/
- People used to pay each other in gold and silver. Difficult to transport. Difficult to divide.
- Paper money was invented. A claim to gold in a bank vault. Easier to transport and divide.
- Banks gave out more paper money than they had gold in the vault. They ran “fractional reserves”. A real money maker. But every now and then, banks collapsed because of runs on the bank.
- Central banking was invented. Central banks would be lenders of last resort. Runs on the bank were thus mitigated by banks guaranteeing each other’s deposits through a central bank. The risk of a bank run was not lowered. Its frequency was diminished and its impact was increased. After all, banks remained basically insolvent in this fractional reserve scheme.
- Banks would still get in trouble. But now, if one bank got in sufficient trouble, they would all be in trouble at the same time. Governments would have to step in