Who benefits from the creation of canadian dollars?

Hi Alex. There are many types of dollars, including paper dollars issued by the Bank of Canada, digital dollars issued by the Bank of Canada, coins issued by the mint, and deposits issued by private banks. Are you asking about any one of these in particular?

So who benefits from the creation of these tokens? The same people who benefit from the creation of any other good. McDonalds benefits from the burger creation process because it earns a profit on each one. At the same time consumers benefit because a tasty burger makes them better off.

The same with Bank of Canada banknotes. A fresh $20 bill is willingly held by a member of the public--it improves their position by making them feel more capable of making transactions. The Bank of Canada makes a profit off of the bill, which it sends to the government. So in a sense all Canadian taxpayes/voters benefit from the creation of paper money, since we are all metaphorical shareholders in the government.

In the case of a deposit, its the same. Both producer and consumer benefit. Except banks are private, so the shareholders enjoy the profit rather than the taxpaying public.

JP,
Anyone is free to compete to create burgers. In a competitive market one must assume that net benefits for producers are small, since earnings will approach costs. Yes: ignoring externalities, consumers who voluntarily buy burgers also benefit.

One the other hand, the creation of dollars is illegal for all but a select number of private banks (in the case of deposit-tokens.) This means we should expect the net benefits of creating dollars to be great. Especially so since the cost of creating a deposit in a private ledger that says "Alice owes PrivateBank $X to be repaid at Y% interest," is negligible. I don't believe it is inaccurate to say banks are making new dollars out of thin air.

As with the case of burgers, the consumer (Alice) benefits since she takes the loan voluntarily. But unlike the burger case, the externalities here cannot be ignored. Creating new tokens does not increase net wealth; tokens are not a magic source of free energy. The net-benefits of PrivateBank and Alice are counter-balanced by the net-detriment of the token-holding general public, since each pre-existing token will devalue due to the increased supply of tokens.

The obvious next question is, "Why don't Private Banks create tokens faster than 6.5% per year?" I assume the answer is that if new tokens were created too quickly, the tokens would devalue so quickly that people might switch to another, for example the USD. Not wanting to rock the boat, Private Banks agree among themselves to limit production to 6.5%.

Annti,

Yes, I'm a big fan of bitcoin. In order to persuasively argue for bitcoin means arguing against fiat, and that means understanding how it is created.

Regarding Bitcoin-IOU's: The difficulty of auditing gold reserves undoubtedly contributed to the pervasiveness of fractional reserves and the exponential increase in gold IOU's in the 1600-1971 era. However, auditing bitcoin reserves is trivial. www.coindesk.com/bitstamp-audit-proves-behind-147m-mystery-bitcoin-wallet/ Exchanges and investment funds that run fractional reserves won't survive the next bear market. That's speaking of the potential growth of bitcoin-IOUs as a store of value. I've never heard of someone accepting a bitcoin-IOU as a medium of exchange, and can't imagine a reason to do so.

"I agree that a deposit can be created "out of thin air", so to say, but so can a new equity share, bond, or any other sort of IOU or promise. Yet it would make little sense to condemn IPOs, equity raises, or bond issuance on this basis. Ease of issuance is a feature of any promise."

I don't condemn selling shares of a company, or selling bonds to the assets of a company, because (like burgers) creating those assets is open to anyone and results in minimal negative externalities.


"Private banks can't devalue the total supply of existing tokens."

I agree and didn't say they could. I said that increasing the total supply (aka number) of tokens, devalues each individual token. Thus when a bank creates new tokens and lends them to Alice, Bob (who holds tokens) loses wealth. A government-granted oligopoly that impoverishes those who don't borrow is an immoral system.

In general, the value that people attach to a good (and the price they'll pay) is inversely proportional to the supply of the good
When a bank creates new dollars, every other dollar becomes a little bit less scarce and thus less valued by people.

New tokens does not create new wealth. Wealth is a type of energy, and one can't create great energy by printing green paper, or by adding zeros to a spreadsheet because the law of conservation of energy.

The act of printing new tokens isn't useful work, it's just a sneaky way for those in power to get more power from those not in power.

Hi Oliver,

You seem to believe the best incentive system for promoting the creation of wealth is obligations to reduce debt. However, many debt and obligation-free people do useful work, and they have done so for millennia. They are incentivized by a desire to collect assets, such as gold, bitcoin, and carrots. You're either claiming that carrots don't work, or that they don't work as well as fear of a stick works. Your claim is depressing and impossible to prove.

"a one sided view as money as only an asset, as opposed to a book keeping view of money as a process whereby both an asset (option to consume wealth) and a liability (obligation to create wealth) are created simultaneously, is dangerous / wrong."

What harm or danger resulted from the thousands of years in which money was only an asset (gold and silver)?

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The depressing thing with debt-based money is that those in power can and do create it ad infinitum. Devaluation of tokens causes inflation of prices, and incents individuals to take on debt. The net effect is a continual transfer of wealth from have-nots to haves.