I hear this a lot in cryptocurrency threads, and I vehemently disagree. There's no doubt that using "some other currency" (currency or cryptocurrency) is better than using a corrupt, authoritarian regime's currency. But there's also no doubt that being able to execute monetary policy is a huge advantage for any country. Read anything about currency manipulation or currency markets. Not being able to control the supply of currency your goods (or others' goods, i.e. petrodollars) are valued in is a huge disadvantage.
It feels like there's a huge political push to try and get the "developing world" (with all the hand-waving that's been applied to this term) onto cryptocurrencies, but that permanently puts them at a disadvantage compared to countries that can manipulate their own currency. I think selling this is short-term-ism at its worst.
And honestly? It's also vaguely colonial. I would love to hear from people in these countries what they think about cryptocurrencies, if anything. Cryptocurrency advocates saying, "we know what's best for you" is super troubling to me.
Why? Because assuming all other things being equal (convenience as medium of exchange etc.), an individual is always going to prefer holding currency that isn’t subject to inflation.
An individual is never going to generously allow their government to erode X% of their liquid cash voluntarily.
This future doesn’t require any crypto ‘dictating’ its money supply policy, it just requires at least one fixed supply crypto to exist in your country that is as convenient as existing cash / online payment to make governmental monetary policy useless.
The problem for governments is: the genie is out of the bottle regarding fixed supply.
Note that I’m not saying it’s good or bad that countries cannot effectively control money supply anymore but it seems inevitable they can’t in the long term.
And why should they spend a so wonderful asset? And what is the point of a currency that is always appreciating and nobody want to spend?
>>"The problem for governments is: the genie is out of the bottle regarding fixed supply."
Central banks don't target the quantity of money, they target the interest rate. The quantity of money is a function of the economic activity, as it should.
The idea that people is going to change to private currencies is a joke. The only thing a government have to do, in order to create demand for its currency, is accept only its currency as payment for taxes.
Fixed supply doesn't mean it will always appreciate.
It just seems like it today because the first fixed supply currency that can be transferred over the internet was only invented 10 years ago. It (or an equivalent, or a mix of equivalents) has to rise from 0 USD to X USD over time where X is "the value of global, fixed supply currency". When X is reached, it reverts to being the worst investment you can possibly make, useful only for buying higher yield assets or exchanging for food, shelter and stuff.
> The only thing a government have to do, in order to create demand for its currency, is accept only its currency as payment for taxes.
Just because I pay taxes in USD/EUR doesn't mean I can't store my cash in a fixed supply currency, and anyone who does this avoids inflation. And if everyone does this, government no longer controls the money supply.
(Let's just use BTC and USD)
Let's say yesterday milk was $2/gallon. But overnight, USD hyperinflated 50% and now it's $3/gallon. Yesterday, I invested 2 USD in BTC. Unless I can convince someone to give me 3 USD for my BTC, I can't buy a gallon of milk.
No rational person will help you avoid inflation like this, because they'd be losing money. They would have to think that the BTC they get from you will appreciate. In other words, they have to speculate.
So the only thing that you do by storing your cash in a fixed supply currency is speculate, and the only way you "avoid inflation" is if your speculation outpaces inflation.
--This is exactly the same as every other investment.--
But there's a huge difference: speculating in BTC helps no one (actually, it almost certainly helps super awful criminals like drug cartels and human traffickers). Please don't do this. Please invest your money in businesses that need it, or in real estate to help build homes, or in any one of a million ways that actually fuel economic growth and have the potential to help a human being.
> And if everyone does this, government no longer controls the money supply.
Why do you think this is a good thing?
This is exactly what would happen, no convincing required. Overnight 50% hyperinflation of the dollar would mean 2 USD worth of BTC/EUR/GBP/milk/anything bought yesterday could be sold for 3 USD today.
> Why do you think this is a good thing?
I’m not claiming it’s a good or bad idea. I’m claiming it’s an inevitable consequence of usable fixed supply currencies continuing to exist.
Ahh, but BTC doesn't belong in that list at all. The Euro and Sterling are backed by large, stable economies, used by each to value their exports. Milk is a commodity, which has intrinsic value (not to mention cost to produce, market, transport, regulate, and sell). BTC is an asset, but not anything like REIT or bonds, because it doesn't represent anything of actual worth. Or, skipping some steps, its only worth is that you can convince someone it will eventually have any value at all.
Cryptocurrencies are unique among all other assets in that, at the bottom of them, they are figuratively bankrupt and actually meaningless. There are no goods valued solely in BTC (even black market stuff is like "$100 / .0092 BTC") and no strong, stable economy backing it. At the end of the day, BTC basically says "someone will give you a lot of currency you actually care about for these zeroes and ones", and because those zeroes and ones have no additional value (i.e. it's not a cure for cancer or a TLS skeleton key), the proposition is literally worthless.
So yes. Normally that is what inflation means, but only for currencies that can actually purchase goods and services people want, or goods people actually want to consume, or services people actually want to use. Cryptocurrencies are none of those things.
This is wrong, assuming values of BTC hadn’t also changed overnight. It could only be true if BTC simultaneously dropped in value 33%, but that would be unrelated to USD inflation.
And even abstract financial instruments like mortgages, REITs, bonds, CDSs, CDs, shares of commodities, etc. are based on these fundamental things. Bonds are based on currencies--which are only worth anything if they're the primary denomination of goods/services with intrinsic worth. REITs, mortgages, etc. represent shelter. Commodities represent food, water, and medicine.
BTC represents... nothing? Energy loss? Honestly there's no analog. Snake oil is still oil, selling someone air--they still get air. And sure, you can still argue "well camgunz, even if it's literally nothing, if people want it, they'll put a price on it". But... isn't that really just super bad, like collapse of the civilization bad if it ever gets to scale? We really shouldn't be convincing people to turn their money into absolutely nothing. That seems very obviously not a good idea.
Or, to put it a different way, BTC isn't any less bankrupt because we sometimes grow too much corn. It's a complete non sequitur.
It seems to me that you believe that when the economy stay the same and the supply of money grows, money loss value.
Then, the other side of the coin ;-) is that when the economy grows and the currency don't, it increases value.
>>"[--] And if everyone does this, government no longer controls the money supply."
Governments already don't control the money supply. If a bank gives a credit, it's creating money in the system.
After giving a credit (and creating money in the process), it needs to increase its reserves. If the government don't give it enough reserves it have to go to the inter-bank market, that will create demand for reserves, and that increase the interest rate.
If the government want to control the interest rate it can't control the quantity of money.
>>"Just because I pay taxes in USD/EUR doesn't mean I can't store my cash in a fixed supply currency, "
You can do it already, for instance, buying gold. Note that the price of gold also move up and down. You can lost money buying gold and it will be not different with any other asset.
The government will always require taxes and utilities to be paid in their currency. So, every one will need to sell cryptos to fulfill those electricity bills and taxes. This sell pressure will carry on a inflation into cryptos.
Yannis Varoufakis said it best: the idea of apolitical money is a fiction and a dream. Money has always been associated to and controlled by governments. Bitcoin currently is actually heavily manipulated/moved by Tether which is controlled by Bitfinex.
China still can't stop its citizens accessing the open internet on VPN. North Korea still can't stop its citizens smuggling wikipedia into the country on USB sticks. Governments won't be able to stop citizens storing their wealth in fixed supply currencies.
> Bitcoin currently is actually heavily manipulated/moved by Tether
[citation needed]
Any links to support your last two assertions ? I'm interested in checking them out.
[0]: https://www.nytimes.com/2018/06/13/technology/bitcoin-price-...
"All other things being equal" will never happen. Too many things change. For example, maybe the world economy is on the brink of depression (2008), in which people would prefer their governments do something about the crisis, despite the risk of inflation. Or maybe you're trying to manipulate your currency to gain a trade advantage. Etc. etc. It's just not a useful thing to consider.
And although this is kind of anecdata, I'm perfectly happy for my (US) government to execute monetary policy that potentially devalues my savings and investments as long as it's justified. Hell I usually make it back with wage/benefit increases (although the same can't be said for most US workers) and interest on investments.
> This future doesn’t require any crypto ‘dictating’ its money supply policy, it just requires at least one fixed supply crypto to exist in your country that is as convenient as existing cash / online payment to make governmental monetary policy useless.
No one's saying what the future does or doesn't require. All I'm saying is that people who are extolling the virtues of a fixed currency should earnestly research why we moved off fixed currencies. There are a lot of really good reasons. No serious economist advocates for a return to a fixed supply of currency.
> The problem for governments is: the genie is out of the bottle regarding fixed supply.
This is comically untrue. It may be true in cryptocurrency circles, but it's absolutely not true in economic circles. It's an idea that's been widely considered and roundly dismissed as very bad. Its support in cryptocurrency circles is driven largely by libertarian ideology.
> Note that I’m not saying it’s good or bad that countries cannot effectively control money supply anymore but it seems inevitable they can’t in the long term.
On the contrary, countries that cannot effectively control money supply will continue to be at a disadvantage with countries that can. It's precisely because of its usefulness that countries will continue to employ it. What could possibly make you think otherwise?
I am not advocating for its return or extolling its virtues or claiming the world will be better or worse with fixed supply currency. I'm simply stating that a rational individual or business will avoid an X% tax on their stored wealth if they can legally do so.
I appreciate your anecdotal willingness to have your wealth devalued as a patriotic sentiment, but have to assume you are in a small global minority who would so if it can be avoided with the flick of a switch ('store my money in crypto') - consider countries where the tax is XX%, XXX%, XXXX% or even beyond (ie. Venezuela). Even X% is a rather large voluntary tax for US citizens with meagre savings.
> This is comically untrue. It may be true in cryptocurrency circles, but it's absolutely not true in economic circles.
It's true in the sense that fixed supply currencies exist today and usability will meet and eventually surpass 'traditional' currencies. The goodness or badness of the idea according to economists doesn't stop them existing today and won't stop them existing in the future.
> On the contrary, countries that cannot effectively control money supply will continue to be at a disadvantage with countries that can. It's precisely because of its usefulness that countries will continue to employ it. What could possibly make you think otherwise?
No government is going to voluntarily give up control of money supply but their mechanisms to do so are very limited in a world where every citizen and business stores their value in FixedSupplyCoin.
I'd also like to add something that I consider the elephant in the room. Haven't tech companies already proven themselves that they're willing to bend to governments' will in order to do business?
No authoritarian government will welcome Libra with open arms. If the currency won't bend to their will, then they will simply ban it and then it becomes (at best) a black market good.
There's also another issue: how do you value it so that it becomes useful to everyone? If I'm in Venezuela getting paid in bolivars then my money already has no power to begin with.
It will also be hard to manage for a lot of people. I doubt some average Joe in a poor country will want to complicate himself by buying something at 0.0000000231 Libra. It will require a lot of cognitive power to not get scammed.
What kind of “decision” are you imagining? I thought part of the point of cryptocurrencies is to remove power to even have these “decisions”. So I’m not sure what the scenario you imagine is.
What if Gold was used as currency easily, is there a problem that would occur?
There are decisions in cryptocurrency. and they are “democratically” made in the computing power sense, which means, as a less computationally powerful country, it might lose policy independence in the global voting.
For gold, there would be much less space for policies, both good and bad, and hence less benefits and problems at the same time. I think that’s one of the reasons why it’s not widely adopted anymore.
For people who don't trust banks (my inlaws don't keep any money in a bank because they don't trust it, so they are unbanked) -- I don't see anything about Libra or Cryptocurrencies that is going to make them trust it. "There's some super-complicated math that proves you own this money and no one can take it from you" just isn't the kind of thing that is going to convince my inlaws to trust it.
Libra hasn't released any pricing on their processing fees so it is all vaporware & unfounded guessing right now.
> there's also no doubt that being able to execute monetary policy is a huge advantage for any country.
I'm not confident about pretty much anything macroeconomic, but I do doubt the confidence of most talk about it. The U.S. was on the gold standard through the Industrial Revolution, for example.
How is this fundamentally different from an unelected monetary economist working at the IMF or Federal Reserve deciding they know what's best for millions of people in a country? Given that you're presenting a country that can manipulate their own currency as the superior choice.
I'm really not so sure that can be stated as some universal truth when it comes to things like the IMF.
Is there? There's a lot of discussion around it. But I've never seen a legitimate push.
I once saw a PR person talk about how you had to earn your way to allow yourself to be part of certain larger societal conversations. Start at grass roots, earn trust there, step up to communities, earn trust there, step up to local governments etc etc. Being big doesn't earn you anything out the gate. I liked this idea. However charitably you think about Facebook, I don't think you could possibly surmise that Facebook has earned its way to the conversation of its stated aims of helping people who can't get credit cards use digital currency.
I think Libra would have been marketed much better if it had been a separate company with FB taking a 51% controlling stake, and these other validators making up the rest.
Evidence points to a massive lack of co-ordination with this launch. Government relations (together with the relevant House and Senate committees) learned about the launch from the news briefing. This whole thing appears to be a shambling mess, born out of desperation more than ingenuity.
Libra is already “spun off”. FB only owns a tiny share.
And it doesn’t matter who controls Libra if everyone thinks of it as ‘the Facebook money thing’.
I think the developing world is ahead of US & EU in this regard, card & bank account usage is bound to decline in the long run.
Libra will probably be a success, perhaps even a huge one.
The developed world does: "based on an analysis of SimilarWeb Android data, Jefferies analyst Brent Thill found daily average users for core Facebook have declined in the U.S., U.K., Germany and France over the last 12 months—although he notes sequential user growth across geographies in April and May. In the U.S., time spent on core Facebook and its photo-and-video-sharing platform Instagram also has declined over the last 12 months, with users spending sequentially less time on both apps most recently" [1]. Antagonism to Facebook not a niche issue.
Autocracies won't cede power to Zuckerberg. Poor democracies have no incentive to sign up to a cartel without rich countries' wealth. Without at least some OECD support, the project is DOA.
[1] https://www.wsj.com/articles/facebooks-pricey-ad-spend-may-n...
Of course they do. The cartel will easily bribe them - whichever politicians need incentivized - to leave the door open. They don't require much of an opening.
Visa is now worth more than every US or global bank - such as JP Morgan, HSBC or Bank of America - and worth more than twice what the largest tech company in Europe (SAP) is worth. Mastercard is worth 70% more than SAP.
These types of massive companies can trivially grease any and all wheels to embed themselves deeper into the global economy. What else do companies like Visa and Mastercard have to spend their extreme brand-bullshit margins on? If you're those guys, the only thing worth directing your flood of endless high margin profit at is to get locked deeper into the global economy. They can afford to purchase infinite lubrication for all practical purposes. Take Visa as an example. They have 50% net income margins - laughably extreme - because they have absolutely nothing else to do with their business other than collect the cash as it rolls in, and then look at ways to ensure their parasite position is perpetual and continues to expand.
It remains to be seen what it will happen to it in the developing world, but the reputation of Facebook won’t be an obstacle.
The developing world would hugely benefit from a scalable technology that can efficiently service digital transactions. The piece demonstrates this with how quickly WeChat Pay and Alipay penetrated China.
I can't imagine the possibility for prosperity when 3 billion consumers enter the global economy in a matter of years.
Alternative currencies were always going to have to compete (or at least deal with) with powerful governments, and all the most powerful governments are most easily manipulated by appealing to a mass audience.
The Facebook brand isn't capable of doing that right now. There's far more incentive for politicians to talk about breaking Facebook up than to encourage Facebook to embed itself in the financial lives of their constituents.
If a decision is made to breakup Facebook, spinning off Libra will be right at the top of the list. I can't see how it survives as a stand-alone technology without the support of Facebook's network effects.