I'm not saying cryptocurrency-denominated debt doesn't exist. It clearly does, as you say. What I'm saying is that when the cryptocurrency in question is not centrally produced, there's no actor who's able to underbid everyone else on interest.
With regards to bank runs, they are not a problem if the deposited money is invested in something sufficiently liquid (like the Bill of Exchange). After all, a bank run just means you sell into the market whatever instrument you've purchased for the deposited money, and this will only be a problem if this instrument isn't liquid enough. Bonds, for example, are not sufficiently liquid to sell into the market in case of a bank run. The lesson here is to not invest demand deposits in bonds (or anything else of insufficient liquidity).
> OK, so what does the other side of this equation look like: what's the advantage to the borrower in taking out more expensive credit?
The advantage to the retail credit borrower is that they don't have to compete with businesses who are good friends with the commercial banks (who have access to the Fed's cheap credit). All savers, world-wide, become lenders, instead of just a few huge banks, who don't really care to lift a finger unless there are huge profits in sight.
Also, a reasonable, market-based 3% discount rate compared to, say, a cheaper Fed-funded 1% rate, is relatively insignificant in the context of retail credit with a maximum duration of three months. For goods that take three months to clear, the retail shop will pay three fourths of a percent instead of one quarter of a percent. That's a very small additional price to pay for widely available retail credit (ie. not having to rely on big banks to give you a credit line).
> Even worse, they're taking out credit in a currency that's appreciating against the dollar?
Taking out credit in a currency that's not stable against the dollar is only a problem if your income is dollar-denominated. After all, millions of people take out non-dollar denominated debt every day, which is fine since their income is denominated in that same currency.
With regards to bank runs, they are not a problem if the deposited money is invested in something sufficiently liquid (like the Bill of Exchange). After all, a bank run just means you sell into the market whatever instrument you've purchased for the deposited money, and this will only be a problem if this instrument isn't liquid enough. Bonds, for example, are not sufficiently liquid to sell into the market in case of a bank run. The lesson here is to not invest demand deposits in bonds (or anything else of insufficient liquidity).
> OK, so what does the other side of this equation look like: what's the advantage to the borrower in taking out more expensive credit?
The advantage to the retail credit borrower is that they don't have to compete with businesses who are good friends with the commercial banks (who have access to the Fed's cheap credit). All savers, world-wide, become lenders, instead of just a few huge banks, who don't really care to lift a finger unless there are huge profits in sight.
Also, a reasonable, market-based 3% discount rate compared to, say, a cheaper Fed-funded 1% rate, is relatively insignificant in the context of retail credit with a maximum duration of three months. For goods that take three months to clear, the retail shop will pay three fourths of a percent instead of one quarter of a percent. That's a very small additional price to pay for widely available retail credit (ie. not having to rely on big banks to give you a credit line).
> Even worse, they're taking out credit in a currency that's appreciating against the dollar?
Taking out credit in a currency that's not stable against the dollar is only a problem if your income is dollar-denominated. After all, millions of people take out non-dollar denominated debt every day, which is fine since their income is denominated in that same currency.