The FT comments today (quoted below) on an upcoming meeting of G20 finance ministers and central bankers on bitcoin. One of the benefits of bitcoin, according to some of its proponents, is that it is a currency not controlled by government. That is indeed a benefit, and in a perfect world, bitcoin would supplant fiat money and we would all again have a hard currency to preserve purchasing power. But perfect isn’t the world we live in.
The primary purpose of the Fed is to manipulate the value of the currency. Take away the government’s power to print money and you also takeaway their power to run big budget deficits. I’m not arguing against that, but does anybody believe central bankers, finance ministers, and the Keynesian influenced mainstream economics establishment will be in favor of such a plan?
It is rather shocking that central banks and finance ministers haven’t come out more forcefully against digital currency already. Until of course you recognize, as the FT article points out, that the saving grace of bitcoin in the eyes of central bankers is that it may lead to the creation of digital currency backed by government. Digital fiat currency is every central banker’s fantasy. Digital money provides central banks with even more control over the value of the currency. Without cash, negative interest rates all of a sudden become much easier to implement. Digital currency could be set to lose value if you don’t spend it.
Seems a little ironic that a currency designed to retain its value has the potential to create an even weaker monetary system than we have today.
Next week, finance ministers and central bankers from the group of G20 countries will discuss bitcoin and other blockchain-based digital tokens. Such cryptocurrencies are poor imitations of money. Almost nobody prices goods in bitcoin, few use them for payments, and, as a store of value, they are no better than gambling in a casino. Policymakers are rightly worried about consumer and investor abuses, as well as illicit use.
Yet, while bitcoin and its cousins are something of a mirage, they might be an early sign of change, just as Palm Pilots paved the way for today’s smartphones. Cash will not be king forever, even though it still rules in many parts of the world. New research from the Bank for International Settlements (BIS) shows non-cash payments have roughly doubled in size, as a share of GDP, since the turn of the century. Some Nordic countries are already cutting back on cash. And the iGeneration is more likely to reach for a payment app than a purse. To their children, bank notes and coins may look like museum exhibits.
Read more here.