And the last point is, what benefit does the community at large derive from this activity that makes it reasonable for them to freely choose to act as guarantors? Why would they not prefer another cryptocurrency that exposes them to no guarantor risk?
The guarantor risk appears to users of the currency as inflation risk, which all cryptocurrencies already expose them to. No movements in their balances would be observed, only (possibly) movements of prices denominated in the good. And, what is more, since this would be the first cryptocurrency which does not impose an "inflation tax" on cash holdings, the costs imposed by this inflation risk would be miniscule to them. Furthermore, as I said in the original post, by pinning the interest target (on both cash and bonds) at the long run real interest rate, prices would be roughly stable in the long run, so any inflation would be short lived rather than persistent.
BTW, I am delighted to have someone who actually knows something about financial markets here, and I sincerely want to understand how that knowledge can be used to improve the state of the art in cryptocurrency. I appreciate your work and knowledge, and sincerely thank you.
I don't intend my responses to be belligerent or argumentative, but instead keep asking questions because much still isn't clear to me. I don't understand for example the motivations of people who would choose to use an over-collateralized market in debt instruments over the option of using the collateral itself.
No need for the thanks or apologies, your discussion has consistently helped me clarify things to myself. I shouldn't have got exasperated...
Bitcoin has many similarities to gold. But societies have persistently chosen to use fiat currencies over gold. Gold however maintains a use as collateral in some real world repos, just as I'm proposing bitcoins would retain a use as collateral here.