Your view must be skewed by privilege of having stable currency. Currency of my country lost 250% of its value over last 7 years. It's not bitcoin-level volatile, but close to it. Thankfully I have an option to use USD to hoard money, but that option is not something that's given, in many countries you just can't exchange for fair price.
I agree that for someone living in US or EU there's no much point using BTC.
It's sad that this aspect of the conversation so often gets replaced by everything else. This is (IMO) the most important point about digital currency - the promise of providing consumers in unstable economies the chance to convert to a more stable currency without government intrusion. We're still not there, but that should be the north star for crypto (again, in my opinion).
Say everyone in an unstable economy were paid in usd. If that country has foreign deficit, if that country has high government debt. What happens? How can the government keep paying its own employees? How does it pay retiree checks? How does it subsidize farming when needed? As long as a country cannot print usd itself, this is a fast shortcut to unemployment, hunger, etc...
Strong currencies are not the solution to poor governance. Good governance and democracy makes a country and its currency strong. Not vice versa.
> Strong currencies are not the solution to poor governance. Good governance and democracy makes a country and its currency strong. Not vice versa.
That's a good point. Too many people propose individualist solutions to social problems, and all their "solution" would do is make the social problem worse.
I think that stems often stems from an overzealous faith in free markets, which leads to a distorted idea that individual self interest factored over all of society always results in social benefits, so you only need to consider things from the perspective of an individual (which is also far more familiar to most people). Sometimes individual self interest does lead to social benefits, but often it doesn't.
Markets only exist within the context of a political system.
They are just a tool to reach a certain policy outcome. The idea of using the free market to replace poor governance is laughable.
It's the opposite. You have to set the right policies and incentives and only then will the free market show its true beauty. Markets fail or succeed because of improper or proper governance.
It's like a genetic/ML algorithm that is optimizing for a cost function. If your cost function is awful your algorithm will be awful but that's not an argument in favor of getting rid of cost functions entirely.
Suppose you've got two political systems each vying for legitimacy. They each have their own currency, and their own set of policy outcomes.
Is it so laughable that whichever one achieves the best results for its users will be the one to establish both market and political dominance? Is letting such a competition play out via the value of their respective currencies any better than traditional means of resolving this kind of conflict (i.e. war)?
I'm not saying I have ultimate faith in the market to do the right thing--it frequently doesn't. But it sounds like you're saying that it can't.
Granted, BTC's political system involves allocating power based on who can waste the most energy--so it's a pretty laughable alternative to existing governments--but in principle I don't see why markets can't mediate the rise and fall political systems in a way that roughly mirrors the way that political systems mediate the rise and fall of companies.
There's that saying:
- Those who make peaceful revolution impossible make violent revolution inevitable.
It seems to me that collectively changing whose currency we use based on their capacity for sound governance is the kind of peaceful revolution that we ought to strive for.
A market doesn’t work in countries without a strong government, since for a market to work, there needs to be faith that the other party isn’t going to break the rules of the market. If you’re trying to sell your goods and someone comes in with a gun, then you have to hope that either you have a gun or can call police. If you have to resort to using a gun, then that leads to huge costs and lots of dead people.
I'm not gonna say that that doesn't happen, but it's surely not the only thing that happens in places without an authority. People want to exchange goods, and they're typically willing to be clever in order to make that happen.
Already cryptocurrencies are implementing webs of trust to guard against this kind of thing (CirclesUBI). There are also things like MAD escrow (particl). And there's the old fashioned way, which is to get the community together and set up your own impromptu government.
I'm not saying that markets function well without readily available trust. But to say that they cease to exist in those contexts is surely taking it too far.
That's precisely the main innovation of Bitcoin. Without the aid of a central authority, people are able to decide on a set of rules that must be respected to play in the market. People can switch to different "markets" with different rules at will.
The value of these markets is itself decided through a free market.
Given a sufficient level of digitization, it's not hard to imagine how many kind of real world markets could be backed by Bitcoin-like systems.
Except for very narrow use cases I don't see how the rules you can enforce in a digital space like a blockchain network help when you don't have a stable meatspace system of law. A bitcoin transaction can be mathematically as bullet proof as you want, but that doesn't help make your meatspace assets any more bullet proof.
It doesn't take much law to make cryptocurrency secure for a person to hold: just protection from home invasion and torture. It can work quite well in otherwise highly dysfunctional societies.
Other forms of property ownership are much more fragile, and require a much more sophisticated legal system.
Ok, so no one can steal my crypto. But what if they accept my payment, and then they don't give me the items I payed for? Or vice versa - if I'm selling something and I give them the item, but they don't initiate the payment? What if the company I work for isn't transferring the BTC in our contract at the end of the month, because they ran out because their own customers haven't been paying?
With a regular currency, the government can print more money and at least have a chance for things going back to normal once the currency has a chance to go back up in value. But with a currency that's not controlled, you won't get payed in worthless money (inflation), you just won't get payed at all! And instead of getting back your lost value if the currency rises in power, you'll have to hope the contract will be honored at a later date, or massively overload the legal system.
Commerce generally works quite well, to the point that it works even when there is no legal compulsion to not cheat.
Bad actors are ostracized while good actors build followings, leading to reputation acting as an effective mechanism to find good actors to trade with, and incentivize people to become good actors.
In any case, when people are free to choose between government-recognized currency and non-governmental digital currency, they will choose the one that best suits each circumstance, leading to greater overall utility.
Yes, in a functioning economy. Here we are discussing what happens as an economy breaks down - as people stop being able to pay their debts, for various reasons.
I thought you were talking about economies with poorly functioning states, like say Ethiopia or Kenya. In these places, markets work quite well, they are just limited in the range of products and services they offer. They have limited access to the most useful financial and payment systems, like PayPal, due to undeveloped banking systems, blacklisting by governments of advanced economies, and bans by their own govermments.
Cryptocurrency offers a much more accessible alternative to global payment systems to the people living in these countries.
Usually, markets work quite well because they work face to face. Internet commerce on the other hand is usually extremely risky business if you don't have access to parties which can control that risk: strong, fair states that enforce complex laws in cases of disputes; 3rd parties that assume some of the risk, such as PayPal or eBay.
Bitcoin solves none of these problems. Sure, it allows you to at least assume this risk, which your country otherwise doesn't, so it's not nothing. But it's at best a band-aid.
It also doesn't protect you in any way from your employer not paying your salary on time, from being wrongfully terminated, from not being able to get a loan, from business partners not paying their debts because they can't sell their own products etc. These are usually the problems that a non-functioning state and non-functioning economy face.
>>Internet commerce on the other hand is usually extremely risky business if you don't have access to parties which can control that risk: strong, fair states that enforce complex laws in cases of disputes; 3rd parties that assume some of the risk, such as PayPal or eBay.
Cryptocurrencies can be used in person too.
With respect to eCommerce, EBay worked extremely well simply because of reviews. Not because of laws. And yes, people came to trust eBay, which was due to its faithful fulfilment of its obligations as a platform steward, not due to regulatory requirements imposed on it.
Will that be enough? AFAIK, every country's government (or some warlord) has a monopoly on violence and the law. If they wanted to, they could easily just draft a law mandating crypto to be stored in particular forms else can't be used/traded. Or they could simply invade your home on some bullshit pretext and seize all of your crypto. Both instances have happened before
(and have been posted on HN too) and I've seen both of them in both autocracies and Western democracies.
Imo, there's nothing better to secure your assets better than some form of monopoly on the law, or a monopoly on violence, or even better a combination of the two. This is also why billionaire classes simply consider crypto a wealth store asset and not a secure store of assets.
In theory, there is nothing an autocratic government can't do to you.
But leaders pay a political price for instituting draconian enforcement measures, while their country pays an economic price, which makes them less likely. It's one thing to send armed agents to storm the homes of executives of a large private bank to shake down the bank. It's another to do it against end-users at a scale where it becomes effective.
You may be right about the most secure form of property. Many don't have access to jurisdictions that can offer people in their income class that kind of security of property. For them, I think in some situations cryptocurrency can be a very secure form of property comparatively speaking. Cryptocurrency can be thought of as a poor man's offshore bank account, literally speaking.
> Many don't have access to jurisdictions that can offer people in their income class that kind of security of property. For them, I think in some situations cryptocurrency can be a very secure form of property comparatively speaking. Cryptocurrency can be thought of as a poor man's offshore bank account, literally speaking.
Actually I didn't mean monopoly on the law and monopoly of violence that way. I meant that billionaires invest a lot of cash into politics and personal security (legal and otherwise) for good reason. It would be very hard for a politician to go head to head against a billionaire donor, since he would just donate to the other guy the next time. Similarly, they get to influence a lot of things including who might head the city's police force or what policies to implement on a regional or national level. It's the same thing everywhere, whether you're in the Indian or Pakistani badlands, the heart of the EU or smack in the middle of NYC or SF.
I agree with crypto being the poor man's offshore, but a poor man wouldn't need an offshore. Not to mention, the barrier to open an offshore account is much less than the cost of BTC right now.
>>It would be very hard for a politician to go head to head against a billionaire donor, since he would just donate to the other guy the next time.
Yes true.
>>I agree with crypto being the poor man's offshore, but a poor man wouldn't need an offshore. Not to mention, the barrier to open an offshore account is much less than the cost of BTC right now.
Offshore bank accounts are very costly and difficult to get. They are also not that secure, considering how many have given up on financial privacy in the face of the warrantless-financial-mass-surveillance aka AML push by the dominant political powers, and leaks like the Panama Papers.
> But leaders pay a political price for instituting draconian enforcement measures, while their country pays an economic price, which makes them less likely. It's one thing to send armed agents to storm the homes of executives of a large private bank to shake down the bank. It's another to do it against end-users at a scale where it becomes effective.
I don't think the political price is as high as you think, and armed agents don't have to storm the homes of end-users at scale. All they have to do is storm enough homes discourage people by making it clear the risk is real, and everyone internalizes the rules.
If cryptocurrency is contraband, it's the worse kind of contraband because it advertises that you use it to the authorities through easily monitored channels (since you have to connect to identifiable internet services to use it).
>>All they have to do is storm enough homes discourage people by making it clear the risk is real, and everyone internalizes the rules.
I suspect the scale of enforcement needed to discourage widespread usage would be very large, and incur political and economic costs that are prohibitive. That's corroborated by the fact that the USD circulates widely in countries suffering high inflation, despite it being in the best interest of the elite of these countries for people to only use the national currency.
>>If cryptocurrency is contraband, it's the worse kind of contraband because it advertises that you use it to the authorities through easily monitored channels (since you have to connect to identifiable internet services to use it).
Only if public access to strong encryption is prohibited, and there are economic costs associated with a country doing that.
That's right, but what's new about this time is that the "how bad things have to get before we rethink laws and governance"-threshold had changed, as has the "how efficient of a government we'll accept before we stop iterating"-threshold.
Governments run themselves but until recently, economies didn't. Now that there are two memes (besides violence) that are each independently capable of mediating coersion on a global scale, we can play them against each other and select for the one we like best.
Governments have always (always) been involved in economies. Rome imported hundreds of tons of grain a year and gave them out free to its citizens. Hammurabi’s code mandated fixed medical payments and regulated professions. Don’t get me started on China. And taxation has been around as long as there has been agriculture, although it’s much better nowadays since the taxman won’t come in and tax all the food you own just before winter, leaving you to starve.
Yes. Police is regulated and has a lot of conventions (laws) and resources that enforce those conventions. Ultimately, it goes back to a fairly well-resourced court of law, which is willing to take a fairly high cost to make a decision, as a shared cost paid through taxes.
With individuals making those decisions, the decisions will be made at much lower cost, and this will result in lower quality of decisions.
If it’s you using a gun, you get Somalia. If it’s the police using a gun, you get the US. (If it’s the police using a baton, you get the UK). It works because the threat isn’t just physical harm but also social consequences. Even going back through history, there would be governmental consequences for not abiding by fair trade, whether that was the local lord throwing you in the stockades or the rest of your tribe ostracizing you.
Of course Hong Kong is now different, but that's not because the government changed its policies, but there is a different government in power.
Singapore had the benefit of a trade port, but it kept importance as such and expanded into becoming a important financial center as well as punching well over its weight in terms of innovation. They have invested in education and provide a stable environment for business.
I will review. Russ Roberts is pretty good. He leans closer to no governance than any.
Still, Hong Kong being different now is because the powerful (China) changed the government to favor themselves. This is actually an example of government falling to powerful interests in short order.
Thank you! Sure fine at some base level there is still technically market in a purely anarcho-capitalist system but that doesn't suddenly imply that the markets we have aren't essentially a pseudo-central planning systems that actually work.
A market is useless if it doesn't actually allocate goods and labor efficiently and in the way people want.
This is why I called Bitcoin “naive and antisocial”. I perceive a long-standing willingness on the part of crypto proponents to willfully ignore why monetary policy exists and how it is tied to society’s needs. Self-governance cannot be cast aside in favor of a currency managed by a network of miners remote from the Economic output, debt and other expressions of local social economy. I called it evil and I wasn’t being hyperbolic.
Of course monetary policy is good for the guys implementing it, crypto is here for the rest of us. Making monetary policy tied to a currency and immutable is one of the great benefits of crypto, akin to having monetary policies be part of constitution.
I don't believe it will be a benefit. Current monetary policy is to keep inflation positive and low, while addressing economic shocks that make money velocity low by increasing the supply.
A low positive inflation effectively makes all prices that are denominated in a fixed amount of the currency slowly lower. This helps the economy - ie, people and companies acting in the economy - deal with changes more easily, since their contracted prices are going down. It also avoids the problem with deflation: Keeping money to spend in the future makes more sense to an individual, thus money velocity goes down, thus less things happen (and all actors earn less.)
That's also why increasing the money supply for crises is good: It allows the same activity to go on, even if each unit of currency moves less. People can get paid the same even if everybody save up money. If there's a fixed amount of currency, they can't, since the currency that would be used to pay them is now bound up in their savings.
> A low positive inflation effectively makes all prices that are denominated in a fixed amount of the currency slowly lower. This helps the economy - ie, people and companies acting in the economy
This helps the people who have capital and is paid for by the people who only have wages. I am a person that only has a wage, so I choose bitcoin.
(self-)governance is big topic in crypto. I predict that crypto will reinvent all the societal structures and processes to form a digital market+government+jurisdiction because a currency alone can't address all the problems you mentioned.
> As long as a country cannot print usd itself, this is a fast shortcut to unemployment, hunger, etc...
We don’t even need to make up hypothetical examples. We have a live one in Greece. The Greek citizens went through this exact ordeal for the exact reason you stated. They couldn’t print EUR and the ECB wouldn’t extent monetary support to Greek government.
I think the real reason is that Greece was more or less forced by the EU to accept austerity and a bad loan it can't possibly repay. The leadup to this was irrelevant.
They were eventually given the right to “print” EUR. One of the many problems with the euro system that periphery countries have unfortunately been subjected too.
They are not. Germany is a net exporter, obviously not all the countries can be net exporter at the same time.
You can't have a stable monetary union without a fiscal capacity. The inevitable debt crisis in the Euro-zone are stopped by the ECB buying debt in the secondary markets.
The hypocrisy of the system is obvious to however takes the time to see how it works.
I don't think the answer to this question plays out the way you want it to...
1. Countries that have natural resources can raise capital when they need to, either by selling/taxing rights to those resources or by selling nationalized resources. Ecuador for example uses the dollar and also produces about a half of a million barrels of oil per day.
2. For many developing countries, the whole point of using the dollar is that it precludes monetary over-engineering or corrupt practices that give rise to inflation. This makes the economy safer for the have-nots, who have fixed local-denominated savings and/or earn a fixed local-denominated wage.
3. Simply using the dollar makes it easier to facilitate trade, tourism, and remittances. Panama does a lot of shipping and transit. Ecuador is a tourist destination. Remittances are the major source of foreign income to El Salvador.
Those countries that accept dollars and also maintain a dollar-pegged local currency are able to conduct monetary policy while also establishing a measure of confidence in the stability of their currency.
What you are missing in your detail is that ecuador actually got itself into a very serious currency bind precovid, and it seems to be staying that way.
So this would validate parent comment and actually negate your assertion that parent was incorrect.
That being said, this is half the story. And its the other part that matters. This is the first time ecuador gets in trouble post USD adoption. Where it goes from here will directly prove or disprove the very thesis, that parent comment assumed was a foregone conclusion.
Thus , your refutation may be correct after all, except for what i believe are different reasons.
> ecuador actually got itself into a very serious currency bind precovid, and it seems to be staying that way.
Ecuador had protests over removal of fuel subsidies to satisfy IMF debt conditions in Oct 2019. Hard to see how that's a "currency bind" in any sense.
> This is the first time ecuador gets in trouble post USD adoption.
Uh...what? You're just making stuff up.
Ecuador defaulted on two bond issues in 2008.
Ecuador had to borrow billions from China in 2015 when petroleum prices collapsed. This affected the country for two or three years. Public sector workers had to wait months for their salaries at times. In an alternate reality where Ecuador uses its own currency, the government would have printed its way through that problem and the resulting devaluation would have hurt everyone with savings or wages.
A currency bind as in, they have no reserves to pay for their expenses / debt. This specific sort of problem no country that can print their own currency has but that doesnt mean that such recourse does not cause problem on its own. But thats not my point.
I dont argue for printed currency. We are actually in agreement there. I'm responding to parent halukakin who said
"Strong currencies are not the solution to poor governance. Good governance and democracy makes a country and its currency strong. Not vice versa. "
I contend that ecuador could prove that statement wrong. The 2008 crisis caught everyone off guard. Once Ecuador comes out of this crisis, we will really see if this experience will be enough to institute good governance reforms which were elusive during the constant ups downs of local currency inflation.
This is an accurate statement when approached from a top down nation / state level. Approached from the level of an average person living in countries with highly volatile currencies, they just want a currency that is not reliably going to be less than it was the day before. It allows those people the opportunity to detach from the issue of "poor governance" over which they have no control and gives them some independence from it.
This is especially true for refugees. They run the very real risk of being killed for any money they are carrying but if one has one's keys memorized then no one knows you have funds and you are somewhat safer.
Over 1/3 of the world's population lives in countries with declining or unstable democracies, crypto currencies provide a small cushion from that in some situations.
If the economy is not working, people won't get the value they are used to. This can essentially be handled in 2 ways:
1. Inflation, which means that everyone is getting the money they are owed, but can't do as much with them
2. Defaults/bankruptcy/breach of contract - people and businesses just run out of money and stop paying their debts
If your country can print money, you will be in situation 1. If your country can't print money (e.g. because it is using BTC or USD or Euros or whatever currency they can't control), then you'll be in situation 2.
I for one prefer situation 1, because there is a chance of recovery from there, and normal life can go on somewhat naturally.
This is a fair point. I have never seen btc taking the place of a nations money. Rather I see it as an alternative means of storing value that can also be used as a means of exchange independent of the monetary supply. BTC will always be measured in dollars/euros/etc.
>>What happens? How can the government keep paying its own employees? How does it pay retiree checks? How does it subsidize farming when needed? As long as a country cannot print usd itself, this is a fast shortcut to unemployment, hunger, etc...
In these countries, those in power rob the public blind. They steal the country's wealth and do anything they can to hold on to and expand their power. Giving the state more power just means giving the elite more power to rob.
The point is that when a state is inept and driving the country into bankruptcy, the grey/black market can be a lifeline keeping people alive.
You don't want to chain the population to the efficacy of state, by closing off avenues to non-state payment-systems and currencies.
The internet, and the currencies built on it, can provide alternate, superior governance systems for financial and economic collaboration that can operate in parallel with state-administered ones.
"Strong currencies are not the solution to poor governance."
Yes they are.
It's really upside down that you'd point out that 'governments can just print money to pay people!' as somehow being an advantage of good governance.
Well, partly, but it depends on a high degree of integrity, if absent, will entail total dissolution.
In absence of a government with integrity, then a 'strong currency' such as one that the government has no control over, say a Caribbean Island that uses USD for example, is preferable to anything else.
"Good governance and democracy makes a country and its currency strong. Not vice versa. "
First - democracy has nothing to do with it.
Second - 'good governance' is the opposite of printing money to pay bills.
In an unstable economy, USDs or Euros are preferable to worthless paper or Bitcons.
> Say everyone in an unstable economy were paid in usd.
Then that country would be paying the unseen tax of inflation as the US banking system prints more and more USD. Said country would basically be a US colony.
It may not be optimal for certain reasons to use USD, and they'd lose some advantages, but there are others to be gained that might make it worth it.
To the extent there are no real capital controls on USD anywhere - and - the US Fed is separate from the government, then nobody is going to be a 'colony' of the US by using USD.
TIL Zimbabwe, Ecuador, El Salvador, Palau, East Timor and the British Virgin Islands are all "basically US colonies".
What about countries that don't use the dollar as currency directly, but keep a fixed exchange rate to the dollar - they would be paying the unseen tax of inflation too, right? With a fixed exchange rate if the dollar value falls, so will the value of their currency. So that would mean Hong Kong, Cuba, Jordan and the Netherlands are all "basically US colonies" too. (China may be kind of surprised about that first one.)
Does this work for other currencies, or just $USD? Are Martinique, Andorra, Montenegro and Kosovo "basically EU colonies"? - they all use the Euro as currency, but are not part of either the EU or the EEA.
We don't actually have to hypothesize about what would happen if an unstable economy switched everything over to dollars (or Euros), either directly or by exchange rate peg, because it has already happened, many times.
Montenegro and Ecuador are effective colonies in their most developed areas.
Most of the valuable property in major metros is owned directly by US-based or EU-based emigrees , who paid top dollar for property that has a ROC duration in excess of 20 years.
Most of the metro areas on these countries are rapidly turning hollow projects which cheap rents or undeveloped land. It is quickly becoming like paris.
Flat rental 2000 EUR. Buy price: 2M EUR.
When someone that is not a local is taking all your valuable land... Thats the textbook definition of colony
Your argument from incredulity doesn't make what I say less true. Maybe my language was a bit strong, but there's no denying if somebody can freely make more of something you value, then they're gaining from your use of said valuable.
This happens in many countries already, the inflation tax of the US banking system is 2% and not an issue. That does not make Panama or Hong Kong US colonies.
Exactly. The Bitcoin folks like to point to a "shadow cabal" that controls US currency as though that same problem doesn't exist in Bitcoin's architecture. At least we know the names of everyone serving on the Federal Reserve's board.
Bitcoin, on the other hand, can be controlled by any miner or group of miners having over 50% of the network's hash rate[1]. We don't know the identities of the miners and we have seen them engage in political actions that change the behavior of the currency[2].
asks for evidence, gets link with evidence, dismisses as "nutters" without addressing the evidence at all. He is showed you the CPI as calculated pre-1980 with a page explaining the changes in methodology and why they're flawed. How is that "nutters"? You aren't having a discussion in good faith.
Why don’t you provide some data instead of conjecture. We generally don’t accept that the government inflation numbers are just plain wrong without substantiation.
That being said parent did not help himself throwing statements out there without a foundation.
Here is what i believe he should have said:
CPI for goods fails in the following:
Accounting for changes in sizes and quality of certain products (i.e. instead of raising prices vendor will lower quality or amount of product )
Accounting for healthcare costs is fundamentally flawed. This only factors out of pocket costs when the majority of americans are effectively paying 80% of healthcare premiums via reduced grosd wages in the form of "employer contributions"
Accounting for substitutions of products in the cpi itself which are not reliable substitutes, or the exclusion of certain items (housing) which are clearly inflationary.
There is also a lot of criticism made for the boskin commision changes https://en.m.wikipedia.org/wiki/Boskin_Commission to cpi which messed with base prices and thus with true measurement of cpi.
Data always trumps common sense, that's why we have science :) - if science had a motto that would be it! Sometimes we need more data, but common sense is often trivially wrong.
I would argue we do in fact need data to show the sky is blue. The data shows us the sky is not in fact "blue" but rather a blend of various peaks and valleys of radiation. [2] It's not so much blue as a bunch of colors at once that happen to be blue-dominant. Further it’s actually the “inverse of blue” in that blue is allowed to pass but all the other colors are absorbed.
> Accounting for substitutions of products in the cpi itself which are not reliable substitutes, or the exclusion of certain items (housing) which are clearly inflationary.
Housing on a $/sqft basis has tracked inflation since the 1970s across the US. What's changed is zoning policy, but zoning policy isn't a function of money supply. [1]
A reduction in welfare is not necessarily inflation or monetary policy, it can just as easily be social policy. You can't pin all society's ills on the evil Fed and their consistent and predictable 2% rate of inflation.
> Accounting for healthcare costs is fundamentally flawed.
Healthcare costs exceed inflation. That's not a function of monetary policy, it's a function of a fundamentally flawed healthcare system in the US that needs to be fixed. That's not the Fed's job, that's social policy.
> There is also a lot of criticism made for the boskin commision changes https://en.m.wikipedia.org/wiki/Boskin_Commission to cpi which messed with base prices and thus with true measurement of cpi.
Peoples needs, wants and expectations change over time. In the same way the S&P 500 and Dow Jones cycle through companies that are no longer relevant, doing so with the CPI basket is the only rational thing to do. For instance, Caviar and Lobster used to be crap food for poor people -- they're crazy expensive now. Is that inflation? Of course not. Totally fair to eject them from the basket.
>Good governance and democracy makes a country and its currency strong. Not vice versa.
The issue with this argument is that good government is a very hard problem that in many cases has no clear immediate solutions. While things like crypto many not be a solution they are a vood stopgap solution for the problems created by bad governments - at least until we can get thw good governance problem solved
Normally the government leverages its power to keep its currency stable. If a country fails at that, the residents tend to switch to another country’s currency, for example USD is widely accepted in countries with unstable currencies, and this makes sense, since a lot of commodity prices are set in USD.
What we have seen with crypto currencies are extreme volatility, not useful to base a country’s economy on, and because it is decentralized, no-one can really intervene to control this volatility, by e.g. changing the interest rate, and nothing is priced in crypto currencies, to sort of keep it tied to something.
The only metric for what a coin should cost seems to be the electricity/leasing of computers required to mine one. But even this metric is not good, as it is proportional to the size of the network, which is not a constant, and is likely to grow, as the price goes up.
I agree assets with fixed inflation, be them cryptocurrencies or precious metals, make poor currencies, but some cryptocurrency projects are actually working on algorithmically price-stable currencies (ie. a cryptocurrency with a dynamic supply, not pegged to another fiat currency).
When/if the supply problem is solved, and a more environnementally friendly consensus mechanism than PoW developed, there won't be many arguments against adopting cryptocurrencies as the default payment method.
Devils advocate - it is possible the large swings are also because it does not have the counterbalancing effect of a large economy on it, and as it gets used more often that will change.
Being able to buy something I want today, because the price went up from yesterday, or saving today when I would have spent, because the price has dropped today causes a regulating effect.
Right now the usage of it is low, small changes in this equation have an outsized effect.
For some countries official rate is terrible and buying USD unofficially is dangerous (it's prohibited and you can end up with fake dollars). BTC might be somewhat safer, as can keep anonymity and there's no fake BTC.
About volatility: you're right but the thing is: even if BTC is volatile, over longer period its value rises up. Nobody lost any USD yet if he kept his BTC long enough.
But none of that requires cryptocurrencies in their current form.
You’re talking about a supranational currency, and I have sincere doubts that grifters of all sorts would not try to take over and manipulate such a currency, as they have for bitcoin.
The governance is more important than the tech IMO.
Why is encouraging people in such countries to use <some cryptocurrency> better than making the US Dollar more accessible to these people? If stability is the goal, I find it hard to accept that DogeCoin is the answer to the developing/third world's economic problems.
How is usd tho? Sure its more stable than bitcoin, but in the last months and years it relatively lost value to eur/chf when bitcoin only increased. Both solutions have issues however only one made holding money lucrative
You're right, we're still not there yet. I love the idea of cryptocurrency but it's being treated more like a speculative investment vehicle than a currency for goods & services. Sure, you can buy some stuff with it but its volatility is generated through all of the speculators.
It needs to be stabilized if we're ever going to replace fiat currency.
" This is (IMO) the most important point about digital currency - the promise of providing consumers in unstable economies the chance to convert to a more stable currency without government intrusion. "
This was never the promise of blockchains or decentralized currencies because those things cannot fulfill the promise.
There's a much more pragmatic answer and that's to use Euros, USDs, Pounds or RMBs for a decade or so until the government has legitimacy.
'Cash' is useful in these economies.
Also, it's possible to provide digitized banking for the purposes of transferring money without the notion of introducing new, funny currencies.
Why would someone give btc against a more risky local money?
What I wonder is, why is it more convenient for someone who has some unstable money available to trade it for btc rather than euro directly for example? - i assume the end goal is to convert it back to a real money you can use to purchase thing?
They wouldn't. A lot of cryptocurrency justifications hinge on made up scenarios. They also ignore the fact that it costs money to even send or spend most cryptocurrency, or the fact that it must be liquidated in 99.9% of spending scenarios, and ignore the challenges in buying or selling cryptocurrency in the first place.
Most exchanges require several forms of ID and verification to buy or sell cryptocurrency. I had to use a smartphone to take a picture of myself with my photo ID before I could even use most exchanges. Someone who doesn't have photo ID, computer or a working smartphone are out of luck in that scenario.
Bitcoin might make sense for remittance, with the intention that it is then liquidated after being received.
It's less regulated so it's more likely people will make poor trades - maybe it's not in their interest as you are implying, but they do it anyway.
Countries can make owning foreign currency illegal. BTC is easier to hide than Euros (cash or electronic). You can trade BTC back to cash without a paper trail by writing down a private key.
In terms of why someone would sell BTC for a failing currency? Maybe they are also a local and have expenses to pay. Otherwise, it's likely the seller is selling for USD or something and there's an intermediate conversion so someone else who needs it ends up with the local currency. It's pretty common to get out of the currency as much as possible (assets, other currencies, BTC) then only dip back in for as little as possible to pay local expenses.
> This is (IMO) the most important point about digital currency - the promise of providing consumers in unstable economies the chance to convert to a more stable currency without government intrusion.
Well, except that the conversion into/out of fiat and the access to the network to transact the crypto are all things the government will usually be quite able to interfere with.
> Currency of my country lost 250% of its value over last 7 years. It's not bitcoin-level volatile, but close to it.
The way I understand volatility, it means wild swings in both directions over short periods. Your country’s currency however has been monotonically weakening. And the citizens have been able to react to that steady decline by storing their wealth in different forms, as you said yourself that you’ve been storing it in USD.
For sure even USD denominated assets have periods of volatility as we saw March last year when the entire world sought to refuge in the safety of US treasury bills or currency. Oil too witnessed some crazy gyrations like negative future pride. But they are in reaction to the extraordinary phase the world was going through then, when the world and hence the business practically shut down. Something which hasn’t happened in at least a generation.
Butcoin prices on the other hand regularly swing 10-15 in a day. Definitely not something you’d call stable compared to any of the world’s current currencies. Perhaps these swings will dampen over time?
> Your view must be skewed by privilege of having stable currency. Currency of my country lost 250% of its value over last 7 years. It's not bitcoin-level volatile, but close to it. Thankfully I have an option to use USD to hoard money, but that option is not something that's given, in many countries you just can't exchange for fair price.
> I agree that for someone living in US or EU there's no much point using BTC.
This is quite a tenuous argument however.
First, currency is only intended to be stored for as long as necessary to purchase the necessities of life or value preserving investments. Losing 250% of value over 7 years is an inflation rate of 14% annually, a hair over 1% per month. At the end of each month you're left with 99% of the value you started the month with. That's sub-optimal but certainly not a dealbreaker if everything else were stable and functional.
The early 1980s in the US had similar inflation rates [1].
Assuming your country isn't sanctioned you could have dropped that money into all sorts of safe havens.
Further, the issue is of course transaction fees. They're about $20 each right now, and the only place those fees are palatable are rich countries with stable financial systems. In countries without stable financial systems they're prohibitively expensive. You can avoid that with Layer 2, but of course, Layer 2 offers none of the benefits you seek with Bitcoin in the first place. Exchanges are centralized, trustful and censorable.
It genuinely, truly meets the needs of nobody who isn't speculating.
It's basically the "ruined fresco" of payment methods. From a distance it looks right but as you zoom in you realize mistakes were most definitely made. [2]
It doesn't make a difference whether a currency is paper or digital - if digital currency takes over in your country, the exact same thing will happen. The government will regulate its use, punish those using crypto 'unlawfully', and print more when it needs to, making it lose value.
See, it doesn't matter what the technology behind a currency is, it ain't going anywhere on your government's turf without permission. They have the ability, if they choose, to go door to door looking for 'unlawful money launderers' or any other designation they slap on the use of crypto and there's nothing you can do about it.
Unless it acquired significant negative value, no, it didn't.
I'm not sure if you mean it declined to 1/2.5 times it's value (-60%) following the popular-but-annoying usage of “n times less” but converted to percentage (it's an idiom that isn't used with percentages and is mathematically wacky to start with) or if you mean to say it declined by 2.5 times it's post-decline value (-71%), using the ending rather than the starting value to calculate the percentage change.
"However, Zimbabwe's peak month of inflation is estimated at 79.6 billion percent month-on-month, 89.7 sextillion percent year-on-year in mid-November 2008."
I recall interviews with government employees, who were quitting in droves. The Government wasn't keeping up with inflation, so at the end of 2 weeks, your check was basically worthless.
The place was falling apart.
People would run to the bank, cash pay checks, and buy STUFF. Anything. Anything physical. TVs, couches, bikes, blenders, ANYTHING. In one interview, a woman's living room was filled with random pieces of furniture, stacked to the ceiling, and a TV.
To trade. For barter.
Because even an hour later, that paycheck was worth so much less.
Yeah, it's crazy sad. Apparently the same thing is starting to happen now in Zimbabwe again with a 737.9% annual increase. At this point they are screwing over their people and any reasonable citizen shouldn't rely on or trust the currency at all.
For mere hyper-inflation, it seems there's a cap of 100% value loss. It's something else together to lose more value than there was in the first place.
Even if BTC were available to all countries, it wouldn't have stopped local currency value losses. And ironically hoarding stronger currencies makes local currencies lose value even faster.
Isn't it 250% loss in buying value? So because of inflation everything now cost 2,5x what it did. Usually your paycheck can afford 100 apples but after inflation your paycheck can only afford 40.
Sure, but that was not the claim by the parent. It's a bit unintuitive the way the parent wrote the claim, but the parent said the currency lost its value by 250% which is not really possible. What I think the parent means is that it became 2,5 times less worth. That is, what before could buy 100 apples can now buy 40 apples since 100/1=100 and 100/2,5=40, and as you say it, that means the value is down by 60% - same thing. At least that is how I understand what the parent claimed.
> I agree that for someone living in US or EU there's no much point using BTC
at the moment, but we are seeing institutional failure all around. as trust in the institutions fall, the importance and value of crypto/decentralization increases.
My guess is they meant their equivalent of the $4 cappuccino is now $10 (or more) in their local currency, which while not mathematically correct is probably the most intuitive way to understand it (as compared to losing 60% which would more than double prices).
In all honesty though if you started using BTC as your main currency*, replacing your national currency, one day you'd have your money in BTC, the next day their value would be wiped out. We're not talking about a slow and steady decline, halving of the value in a decade. We're talking "no money to buy food for the next few months". Many people in countries with unstable currencies are particularly vulnerable to this kind of fluctuations because in general they have nothing to absorb the shock, no assets, no savings, etc. Unlike traders these people can't just wait for the rebound, by that time they're bankrupt.
BTC is useful for exactly the scenarios it's almost exclusively used in now: speculative transactions (buy low, sell high), or transactions for less than legal stuff and the overwhelming majority of proponents are in these 2 camps. There's a much smaller group of proponents made up of people who don't understand currencies in general (besides the basics, like spending them), or cryptocurrencies in particular.
I'm sure some form of electronic tender would fill this role you're describing but it's not BTC and probably none of the major cryptocurrencies on the market now.
* (putting aside the network capacity, number of transactions/sec, the cost of producing a BTC and of a transaction, etc. which make it completely unsuitable for the purpose of using the currency instead of just storing and trading it, which is probably the only significant purpose of BTC today)
I don’t think you’re wrong. You might be missing a bigger game though.
BTC is fundamentally deflationary in nature - let’s ignore the price volatility and the like for now, I’ll cover that later.
It has also so far proven incredibly resistant to attack, both inside and outside the community and despite easy billion dollar payouts if an attack would be successful.
There are also efforts making good progress (lightning network among others), addressing structural issues, and large scale semi regulated brokers with good track records (coinbase, kraken).
The price volatility is speculative, and while some is get rich quick (well, a lot), some is also what happens in a deflationary spiral.
If we speculate that Bitcoin will end up being a ‘not able to be broken by a greedy gov’t like all the other currencies’ means of exchange, the current price is cheap. Every large institution will need some to clear central bank type transactions (the part that may be what ends up on the blockchain), and 14 million ish isn’t enough at current prices.
If we speculate that will never happen; the current price is ridiculous and it’s all just a giant Ponzi scheme.
Frankly, neither of these options it is fair to rule out, and the volatility is because of uncertainty and the wide variability in value for Bitcoin between these options.
We’re entering a stage where global attitudes are shifting to one of distrust, especially between countries and citizens and their gov’ts, and some means of exchange that doesn’t require a distrusted entity to play nice has value, even if it isn’t 50k per.
I agree but in the grand scheme of currencies and payment infrastructures they barely got out the door.
I believe today and for the foreseeable future BTC will be adequate almost exclusively for speculative traders and people who need legal deniability. Most people throw around narrow interpretations for why BTC would be good and they're all good explanations if you look just at selected arguments. Take the "BTC is great as a currency in countries with steady high inflation" stance which might hold if you consider only a really narrow set of set of BTC criteria.
I'm not ruling out anything for some future really. As a personal opinion I believe there's room for e-coins (I'll stay away from the "crypto" nomenclature as they may not rely on a blockchain or crypto per se) but BTC in particular has no real room in a CB for more than a fad (also speculative). Think at the central mandate of a CB: price stability and inflation. Controlling these is quintessentially antithetical to BTC as a main currency, or as a currency. BTC as a decentralized currency takes central banking out of the equation. Or conversely central banks take decentralized currencies out of the equation.
So even if you think of it pragmatically, no government or central bank (since they should be as independent from each other as it gets) would allow replacing the country's currency with BTC both for "selfish" reasons - they'd lose control. But maybe even more importantly for national security reasons. No country wants a coin which can be sent spinning just because some CEO (or worse, your enemy) decided to pull a shady maneuver for personal gain.
The kind of control currencies need to be fit for the purpose of a general, national currency for your citizens simply precludes using BTC at that scale. Should BTC ever become as "big" as a real national currency I'm certain it would show many of the same cracks. Except the small players (average Joe) would have nobody to turn to when things go sour. No central authority, no central responsibility. You see this whenever there's a new hack or financial maneuver that parts people from their hard earned cryptomoney how they suddenly lose that blind faith in "the coin that governments can't control" and start asking for regulation. You can only regulate when you have control.
First part of your argument - Isn’t this literally the argument against every new anything?
Second part - I think you’re also misunderstanding? Central banks hold gold and other countries currencies for international clearing, export/import, and national security reasons. A central bank is not holding them for price stability and inflation control. Only a small handful of central banks (the fed) meaningfully target those goals, and if they do it is for their own fiat currency.
If you think a central bank is going to hesitate to hold a useful asset for international exchange purposes if a ‘ceo or worse your enemy’ could send it spinning, you’re not paying attention? China’s central bank holds at least $1 trillion US dollars for instance [https://en.m.wikipedia.org/wiki/Foreign-exchange_reserves_of...], along with Euros and every other currency useful for it’s goals. There is a huge variety of foreign reserves currencies in wide use [https://data.imf.org/?sk=E6A5F467-C14B-4AA8-9F6D-5A09EC4E62A...] covering everything from Chinese renmenbi to Swiss Francs and UKP. All of these change dramatically relative to each other on short notice, all are enemies or economic competitors with some selection of people using them as reserve currencies, and there is no central authority to go crying to if one of them defaults on their debts or inflates their currencies.
And third part - I’m not saying it’s likely any government would replace it’s fiat currency with BTC or any other currency out of it’s control. I’m saying Zimbabwe and many other places don’t really run on their local currency, they run on what people use (currently dollars in most cases, but some places BTC is getting traction) - because their gov’ts destroy the utility of the their local currencies and people can’t trust it.
> First part of your argument - Isn’t this literally the argument against every new anything?
Oh, that wasn't meant to be an argument against something new. As I said repeatedly, it's an argument against BTC as it exists now and as it will be for the foreseeable future. The expectations for a stable "national" currency are incompatible with the pillars of BTC. That was my original point.
The Fed, the ECB, the Central Bank of China all have price stability and inflation as a mandate, of course for their own currency. And this should already hint that they want control over their national currency. Gold and other countries' currencies are explicitly things that are regulated by the respective countries and/or "relatively" stable. I'm not aware of any national currency as volatile as BTC. They're all substantially more more resilient to outside manipulation because they're regulated and traceable. Governments and Central Banks don't want their country or citizens to rely on a currency they don't have any control over especially in places like US, EU, China, Japan. Just think of the UK refusing to give up the GBP to adopt the EUR because it involved losing control of the currency. So while I can imagine a bank (central or commercial) holding BTC one day as an asset, I'm having a really hard time seeing the "unregulated currency BTC" being used as a "national currency" in any place that matters.
> If you think a central bank is going to hesitate to hold a useful asset for international exchange purposes if a ‘ceo or worse your enemy’ could send it spinning, you’re not paying attention?
If you were to ask Mario Draghi or Christine Lagarde they would tell you no CB should hold BTC. I'm not saying I can see the future but I'm trying to understand what you know and they don't.
When China deliberately weakened the yuan to gain an advantage in the trade war with US (to boost exports) it was immediately noticed and attributed and that could be (was?) used as justification for sanctions and tariffs. Bitcoin is decentralized and pseudo-anonymous.
> I’m saying Zimbabwe and many other places don’t really run on their local currency, they run on what people use (currently dollars in most cases, but some places BTC is getting traction) - because their gov’ts destroy the utility of the their local currencies and people can’t trust it.
So they rely on a well regulated currency like the USD. How would BTC improve on this? The USD is stable enough for Zimbabwe to use because it's under central control.
Taking more practical approach for the regular person, at the absolute minimum a currency is supposed to come with consumer protections that are derived from regulation. BTC was specifically designed to curtail regulations. This won't be fixed by faster or more efficient networks. That can't be "fixed" at all because it's one of BTC's tenets: stay unregulated and out of gov't control. So your citizens are not only using an unregulated currency that offers them no protections, they're also extremely vulnerable to outside manipulation.
BTC is an unstable coin, that cannot be regulated to offer consumer protections or complying with anti money laundering laws. In theory this recommends it to speculators and people who are looking to be shielded from the law. The reality just happens to match the theory to a T.
Some e-currency will surely fit the bill one day though but I'm not entirely sure if there's one to be both regulated and unregulated at the same time, to make everyone happy.
I think you're fundamentally misunderstanding my comment, and we're mostly agreeing with each other - apologies if I wasn't clear!
I was quite explicitly referring to speculative future events, and how their odds of happening directly impact current pricing of bitcoin.
USD is reasonably well regulated now and has been historically - by some definition - at least as well as any of its competitor currencies, though none of them are looking particularly great right now by traditional measures.
What are the odds it will remain so for 10 years? 20 years? 50 years? Less than 100%, better than 0%.
As BTC addresses issues over the next 10, 20, 50 years - could it be a viable option for central bank clearing in the way JPY, USD, or gold is now? What are the odds? 100%? 0%?
With the work, attention, and considering the existing progress it's made, will it be a viable option for a trans-national or even national currency over the same time frames? What are the odds? 0%? 100%?
I'm pointing out that 1) none of those options is clearly a 0% or 100% outcome over the time frames we're talking about 2) depending on your individual judgement and how optimistic or pessimistic you are about various parts of these equations, depends on what you think BTC's value currently is.
Even people just hedging their bets against a not impossible outcome can lead to a deflationary spiral, leading to high prices until there is clear data one way or another where things will end up.
Let’s talk larger game - assume the btc-denominated economic zone becomes non-negligible in size. The best defense for neighboring economic zones is good fiscal governance. Because BTC land will be an anarchic mess. It will have multiple germanies and Greece’s and Nigeria’s within it, and Cartel controlled sub zones, etc. who will deal with rising levels of indebtedness in BTC instruments? Who will deal with fraud, cartels seizing companies and households’ reserves, or simply defaulting on debt in this “trust less” Dystopia?
Vastly different levels of productivity between regions of the same economic zones or between zones can result in crazy social friction without trade regulation and controls - how will BTC land manage this friction?
Additionally - the energy and security requirements of btc zone participants will become crushing. Why will market participants continue to labor in this spiraling High energy hell when they can retreat to the much lower energy state of a trustful, managed economic zone? It will be like a breath of fresh air.
This is pretty misleading though, 2008 the USD tanked. GBPUSD and EURUSD were crazy high and currencies like RON, PLN had bigger swings, but if you look 20 years you can't say things have changed that much, esp with all the other changes in the world.
Interestingly we have the opposite problem, our customers mostly pay in USD and many of our employees are paid in EUR, which is pretty high vs USD lately, and that difference costs us quite a lot.
> Currency of my country lost 250% of its value over last 7 years.
I doubt population of your country at large can afford bitcoin transaction fees for their daily shopping.
BTW, are you saying that your currency has negative value now? I assume you mean a 2.5x inflation multiplier over 7 years, or +14% per year. That's mild compared to an order of magnitude walk of the BTC-USD rate over just one year.
The only real use case for BTC I see is moving capital between jurisdictions.
" Currency of my country lost 250% of its value over last 7 years. "
The problem is not your Central Bank, it's almost assuredly a total dysfunction of government and the civil services - which will have effects more far reaching that Central Bank problems.
The solution is not BTC.
It's to use something common and trusted, temporarily, like USD or Euros until there is enough credibility in the system for external parties to accept your own currency.
Or - to overthrow your government, install leaders with integrity and hope that international bodies accept the change, because if they do, you'll be in a much easier position issuing your own currency than having to issue debt in a foreign denomination.
Put another way: it's not a currency problem, it's a governance/management problem that exhibits itself in currency problems and other things.
BTC will not really help you have a better managed government.
The average person in your neighbour hood is sitting reading the paper, contemplating: “I’m worried about inflation. should I buy some Bitcoin, or should I overthrow the government? I think I’ll try the overthrow option today”
Bitcoin, at least, absolutely does not solve this problem. Let's leave aside its volatility for now and assume it magically stays at exactly the same price. You are then left using a currency where each transaction costs several dollars and takes a half an hour, and that's the present state of affairs when no one is using it. So you would keep your cryptocurrency in a bank and transfer it through the normal channels, which opens it up to the same government controls you're concerned about. That's if you're allowed to hold cryptocurrency at all.
Hyperinflation is a problem of massive corruption and incompetence in government. It doesn't happen by accident in an otherwise stable society. If you're concerned about hyperinflation, you should assume the bank (or "exchange") will be subverted and transactions will be censored. Bitcoin was built to solve those problems, but does not scale and so cannot.
This is, by the way, the only situation where I'm at all sympathetic to cryptocurrencies. If someone can come up with a cryptocurrency that scales and that isn't controlled by cartels, I'll be glad that it can be used in unstable parts of the world.
30 mins for FINAL international settlement of arbitrary $ amounts between $0.001 - $100B IS fast - and the uptime for the BTC network is 100% since inception ~2011.
If you're really wanting to compare apples to apples - For traditional banks doing cross border transactions, it takes up to five days at most global banks, not counting weekends or bank holidays to actually settle with a lot more intermediaries involved.
> So you would keep your cryptocurrency in a bank and transfer it through the normal channels
You do your daily spending through the normal channels, sure, but why would you need to keep your cryptocurrency savings in a bank in such a situation?
Bitcoin is fantastically slow. It can handle about 120 million transactions per year. That is absolutely 100% unusable for anything at scale. If 30 million people used Bitcoin, they could each do about one transaction every three months and the fees would be sky-high. That is not good enough, not even for savings.
Other cryptocurrencies are faster by smallish constant factors. None of them, at this time, are scalable. None of them are fast enough to be usable by millions of people.
I agree that for someone living in US or EU there's no much point using BTC.