What Is HBD And Building An Economy

There still seems to be a great deal of discussion surrounding the Hive Backed Dollar (HBD) and its role in building the Hive economy. That said, there appears to be a disconnect in regards to how currency enters into that picture.

Some of this related to whether the 20% APR paid on HBD in savings is sustainable. As outlined in HBD A Scam? Most People Do Not Understand This At All, it is not only sustainable but for decades.

Even still, there are those who fail to grasp how this all works. In the next couple articles we will delve into it in greater detail.

So let's get started.

@doze

What Is HBD?

HBD is a debt instrument that extracts its value (at least initially) from the market cap of the other base layer coin, $HIVE. It is a pegged currency, with each HBD being worth $1 in $HIVE. Since that currency has a floating exchange rate, the amount of $HIVE each is worth will fluctuate based upon market pricing. However, as long as the haircut rule is not exceed, each HBD can be converted into $1 worth of that asset.

It is in this sense it is a stablecoin. HBD is not a value capture token. It is not designed to be speculated upon or invested in. Certainly, depending upon how markets are operating, there could be arbitrage opportunities. Nevertheless, the idea is to not have volatility.

Here is where we see the differing from most of cryptocurrency. The majority of coins and tokens out there are treated similar to stocks or commodities. People are purchasing with the idea of the price going higher. This means that volatility is inherent and, even desired, as it present profit opportunities.

HBD is similar to currency in that it serves as a medium of exchange. Commercial and financial applications want stability from a payment mechanism. HBD can provide this.

Currency

At present, there are only two currencies that can be consider global. They are the US dollar and the Euro. These two make up the majority of global transactions, reserves, and derivatives. It is also the denomination for most of the world's debt.

All other currencies, for the most part are primarily in their own country. While Yen and Yuan are next in line, they have insignificant totals at a global level.

A currency ultimate derives its value from the economic productivity tied to it. That is why the USD and EUR are top dogs. When we look at the percentage of commercial and financial productivity, it is no contest.

It is also why currency is what drives economies. Economic growth requires money to fund it. Of course, to capture that growth, the resources to convert the money into productivity has to be available. When dealing at a national level, this could be questionable. We know many countries that simply do not have the ability to increase their economic productivity regardless of how much money is added, at least not in the short term.

The same is not true for the global economy. With the advancement of technology, we are seeing massive acceleration in many areas. Much of this is deflationary since that is the default state of technology. Due to this, more currency is required.

HBD is a global currency. Being part of the digital world, as is all cryptocurrency, we can see how the Hive economy can spread to any area. This is an important concept to take note of.

More Money In Venezuela and Cuba

Want to pay the electric bill for everyone in Cuba with HBD? Based upon the population, that would require roughly $44 million HBD. How about buying lunch for everyone in Sucre, Venezuela? To cover the almost 900K people, at $10 each, that is 9 million. What if we wanted to buy lunch for the entire country? 280 million HBD.

Obviously, we are focusing upon consumption (i.e. payment) in these examples. This is what most people quickly latch onto. However, that is not really how economies truly develop. The main focus starts with production.

Fractional Reserve Banking

Most of the world operates under a fractional reserve banking system. Under this setup, the most of the money supply is created by the banks making loans. This instantly generates economic productivity since most loans are made by banks to fund something that is produced. Whether we are looking at cars loans, mortgages, or business investments, we see something that is either made or build and then purchases. In the case of the latter, the investment is being made with the intention of creating greater economic output such as the case in building a plant.

The challenge with this system is being seen right now. What happens when banks stop lending? The money supply slows. Remember, money is needed for economic expansion. People seem to want to be paid to do research or to design, build, and transport things. This all requires money.

Most pay little attention to the business cycle. The challenge is this can be the driver of everything. When the peak is reached and we start to head down the slope, what do you think banks do? They tighten lending standards. This slows the creation of US dollars, as an example. It is compounded by the fact that we also see defaults increase as economic conditions deteriorate. This furthers the contraction of the money supply exactly when more is needed in the economy.

It is one of the shortcomings of the central bank system. The Fed, in this instance, has no way to get money directly into the economy. For that reason, it has to use monetary policy that is indirect, hoping to incentivize the commercial banks to lend.

Development

Going back to HBD, this operates in a different manner. Nevertheless, we can clearly see how much is going to be required if we are building this out.

Let us pull a number out: 100 million.

How much development could take place on Hive if we suddenly had 100 million HBD to pay developers? What applications, games, and platforms could be created? Do you think it is a lot more than today?

What if we increased that number to 500 million? Would that outpace the 100 million? Most likely.

Now we will go wild: 1 billion HBD all dedicated towards development over the next 12 months. Presuming we could find the developers, which globally they exist, what would the economy look like in 18-24 months?

Obviously it would be much larger. With 1 billion, there would be thousands more applications tied to the ecosystem. The appeal to the average user could be question but with that many, something would likely get interest.

This is what investment and funding is. It is money that is used to stimulate economic productivity through different companies and projects. Under the present system, it is handled by the commercial banks making loans.

It is the increase in currency that drives the growth rate as long as the resources exist to turn that money into productivity.

Distribution

There is a major point that we will close with. The distribution of a currency is vital. This is one of the attributes of being a reserve currency. It need to be accessible to those who need it.

The present system can be question as to who gets the money. We know there are some drawbacks to our present lending system, especially the last few years as small businesses were pushed aside (or put under). Larger corporations can access the capital markets, which doesn't create new money but does get them the funding required. Smaller entities are not so lucky.

HBD is being distributed through a variety of mechanisms. It is entering wallets of people all over the world. One does not need to be approved to granted the money. Moving HBD to savings gets a payout.

We see the results of this in areas such as Sucre. Each day, more HBD is entering those wallets, which that area is using for commercial purposes. At present, the financial options are rather limited but the infrastructure is being developed. The goal will be to provide more opportunities related to HBD and people's holding.

One final thought that will lead us into the next article:

There are almost 81 billion Tether in existence. This currency is basically a parking spot for those in cryptocurrency when they are moving their way out of speculative assets. There is little commercial utility tied to the currency and, as far as I know, few derivatives.

Next up we will explore how this can relate not only to Tether but the US dollar. This will all tie into building value on HBD itself.

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