The Greshm System [pdf]

There's some amount of USD reserves that would make this scheme work. Certainly with $100T it would work. Might it work with only a few billion? Hard to guess. I was surprised how little reserves seemed to be needed to make Tethers work.

The proposal addresses how to discourage consumer withdrawals. But at some point currency traders will get involved and find ways to short the new currency. In the past, traders have created runs on the treasuries of large countries who were propping up their currency.

The key challenge with this system is merchant adoption. Since merchants are forced to charge the same prices in the less valuable currency, they'll drop out if its exchange rate falls by more than their profit margin (and perhaps before then).

I always wondered what would happen if a country using the Euro right now decided to back out and go back to its own currency.

Wouldn't exactly the same thing as the above proposal occur?

ie. Everyone in the country is suddenly paid the new currency, exclusive usage is mandated so by law and taxes require payment in the new currency. There would be fewer Euros needed for internal Fiat so those Euros could be invested and thus the switch should make everyone in those nations that little bit richer right?

> Certainly with $100T it would work.

That's more dollars than are in existence, by the narrower money supply definitions.

> I was surprised how little reserves seemed to be needed to make Tethers work.

An ordinary bank has maybe 10% reserves. Tether had a whopping 70%, if you assume that this money actually exists.

Of course it could all be make-belief. You can fool some of the people, all of the time.

> But at some point currency traders will get involved and find ways to short the new currency.

That's not necessarily a problem. You can do that with Tethers and wait for some big dump to lower the price. As long as the currency is backed by withdraw-able US-dollars, there's little opportunity for profit, it just doesn't make sense to sell low.

The key to any good currency (and product) is how to get adoption. I don't think the paper addresses this point, it just assumes merchants will accept greshm like it accepts dollars. I don't think that will be true. If they are dollars, then they have to follow all the financial rules (against ponzi schemes and other types of fraud).

Also, I have my doubts on any currency system that is not connected to real wealth or real value in anyway. I think history has shown that these currencies end in hyperinflation.