Everything I've read so far suggests that a Ripple "gateway" is just like a bank. How is it different than a conventional bank?
Is it possible to have a bank of banks (central bank) in Ripple?
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A Ripple gateway acts much like a bank. They compete based on trust, convenience, and cost. They hold other people's money. They promise to handle that money according to their customer's instructions.
One difference is that there's no formal barrier to entry to becoming a Ripple gateway. Someone can open a gateway anywhere in the world and have equal access to the Ripple network for transferring balances, exchanging currencies, and so on.
You can imagine a "central bank" setup on Ripple. One way the central bank could work would be for the central bank to guarantee the performance of gateways and ensure liquidity between them by committing to maintaining a 1-to-1 exchange between the balances of the gateway's it guarantees and its own balances.
Another way a central bank could work on Ripple is if the central bank is the sole currency issuer and manages the account people trust. This would allow a currency with a money supply managed by a central authority.
A bank could also maintain interest bearing deposit accounts on Ripple. A central bank could maintain such accounts for banks or gateways.
The one big difference is that banks are allowed to create money.
When you take a loan out of a bank, the bank's funds don't go down. Your account gets fresh new dollars that are not coming from some other acount. They are brand new. Only a gateway with a banking permit would be allowed to do this, but then it would technically be a bank.