Caitlin Long Is Suing the Fed To Open a Rothbardian Bitcoin Bank

“A one hundred pc reserve financial institution that may maintain all of our money on the Fed,” she says. She was influenced by the work of Austrian economist Murray Rothbard, who noticed fractional reserve banking as “a shell recreation, [and] a Ponzi scheme,” arguing that banks ought to work precisely like safety-deposit bins, or “cash warehouses,” required to maintain all of their clients’ cash available in any respect time.

Lengthy has a regulation diploma from Harvard and had a traditional profession on Wall Avenue, working at Morgan Stanley, Credit score Suisse, and Salomon Brothers. After the 2008 monetary disaster, she thought all the commonplace accounts explaining the meltdown fell brief. Looking for a greater framework, she found the Austrians and Rothbard. 

“The idea right here is, let’s simply flip this right into a primary cash warehouse to the utmost extent doable inside the regulation,” Lengthy tells Purpose.

In March 2023, when rumors began circulating on Twitter that Silicon Valley Financial institution may be in hassle, its panicked clients withdrew $42 billion from their accounts in a single day, leaving it with a unfavorable money stability. In brief order, regulators shut it down.

It was a traditional run on the financial institution, which is a phenomenon that is solely doable due to a regular follow often known as “fractional-reserve banking,” wherein the cash in your account is not really sitting in your account. The cash banks maintain for you is generally loaned out or invested. They only must guarantee that they’ve sufficient money available to cowl any withdrawals. The system works advantageous—till everybody comes for his or her cash without delay.

“Much more folks on this planet now acknowledge that the cash of their financial institution is an I.O.U. to a leveraged establishment,” says Lengthy. “Most individuals did not take into consideration that till lately.”

So she based Custodia Financial institution, based mostly in Wyoming, which is able to maintain 108 % of its clients’ deposits in money always, serving as a real Rothbardian cash warehouse that can even custody bitcoin for clients.

In January, the Federal Reserve Board denied its software for a grasp Fed account, which might enable them to retailer money and transact utilizing Fed cost rails like each different main financial institution. Custodia has sued the Fed to power it to reverse that call.

“They’re principally making a federal veto that has by no means within the historical past of america existed,” says Lengthy. “And what I am standing up for and saying is that it should not be politicized, interval.”

Purpose sat down with Lengthy in Miami on the Bitcoin 2023 convention to speak about her case in opposition to the Fed, why she believes in full-reserve banking, and the way Custodia may assist bitcoin go mainstream.

Photograph Credit: Minh Nguyen, CC BY-SA 4.0, by way of Wikimedia Commons; Tony Webster, CC BY 2.0, by way of Wikimedia Commons; Lian Yi Xinhua Information Company/Newscom; Richard B. Levine/Newscom; Nicolas Economou/ZUMAPRESS/Newscom; Stefan Fussan, CC BY-SA 3.0 DE, by way of Wikimedia Commons; Ken Cedeno/Sipa USA/Newscom.

Music Credit: “Time to Transfer,” by VESHZA.

• Editor: Adam Czarnecki
• Graphics: Regan Taylor