Topic: ECB paper on Bitcoin and virtual currencies - page 4. (Read 16899 times)

It is an academic article by a professor at Rutgers university. Economists working at central banks do whatever macroeconomics research they like. (e.g. the economists at the Minneapolis FED only write articles saying that the FED is useless).

If I may quote myself from the first page of the thread:


I am so prophetic. Yay me!

What are you talking about here? "late stage of development, very high level of liquidity" "commodity money"

Is this some vision about how we weren't ready for commodity money before due to inadequate development, but in the future we become ready and then it works well.

If not, explain what you mean.
If yes, you should put Karl Marx as your avatar.

The "evidence" you link to is a Central Bank website. That is not a neutral source.

You dont have much credibility, IMO. I see no reason to debate with you.

Firms that have liabilities in USD and assets in BTC are going to fail with high frequency. Likewise, firms that have liabilities in BTC and assets in USD will also fail with high frequency.

Bitcoinica got into trouble with this, even though it failed for other reasons. Pirate also expressed concern about this, though he failed for other reasons.

I don't understand why bitcoin would fail to 'emerge as a unit of account'. That is an Austrian economics argument (read bunkum). Neoclassical economic theory supports bitcoin having positive value in equilibrium (though there are multiple equilibria).

Read Kiyotaki and Wright

http://cas.umkc.edu/econ/economics/faculty/wray/631Wray/Kiyotaki%20and%20Wright.pdf

This totally changes the meaning.

I wasn't aware that we had annual GDP data for the Byzantine Economy. Could you please point me to it.

What is the counterfactual here? They may not have lived up to your expectations, but that doesn't mean you'd be better off without them. You did not establish criteria for favorable performance.

Regarding evidence...

Sure, real GDP volatility is a measure of economic stability. The question is whether real GDP is less volatile when countries have a central bank acting as lender of last resort.
Everyone has a lender of last resort now. So I think you'll need historical evidence. Show me data which shows that during the 19th century, GDP was less volatile in countries that did not have a lender of last resort.
The evidence that I'm aware of suggests the opposite.

I posted a paper in another thread about it. Here it is again:

http://www.rich.frb.org/publications/research/economic_review/1990/pdf/er760103.pdf

I will not accept evidence along the lines of (if only x and y had happened), then free banking would have worked better. That is speculation, not empirical evidence.

(I'm not going to talk about the theory of what is really going on... It is much too speculative. Often almost useless in my opinion. I'll prefer to restrict myself to questions one can answer with data. e.g. is GDP less volatile with a central bank? are there fewer banking crises? Do banking crises have greater geographic scope? etc.)

I meant his view, not this view. The Keynesians argue that during a depression, there are idle resources in the economy (for whatever reason) and this causes problems. What would persuade cunicula that these "idle resources" actually represent a move towards, not away from, an equilibrium, and that they are caused by the influence of credit on the money supply?

Yeah, when I think of "people who know what real life is like," I think of bankers. Real salt of the earth types, those guys.    But you're kind of making my point. It's pretty good ... for bankers, i.e. still pretty terrible.



First of all, I've gone literally days without ending a conversation with that phrase. Secondly, I didn't think the history of the Federal Reserve's founding really qualified as a "conspiracy theory" at this point. And frankly, I'm more interested in public choice theory than I am in conspiracy theory. That says that the banking industry, like pretty much all industries, will lobby for and defend policies that restrict competition from new entrants and keep their own profits artificially high.


Well, I guess it tried to do some of that but it got most of it wrong. The pros of Bitcoin over fiat are that it's more durable (resiliency of distributed networks, ability to "copy" money for security without actually duplicating it), more fungible, more reliably scarce, more provably genuine, more divisible, has radically lower transaction costs, is faster, enables greater financial privacy, is more transparent from a systems perspective, and eliminates counter-party risk for holding and transferring value. The pros of fiat over Bitcoin are inertia (network effects) and the fact that it's the preferred currency of the men with guns.

A good theory must be theoretically falsifyable. I think he's asking you how that could be done so he can then present a counterexample.

EDIT: increased level of quoting to include quote of DublinBrian which was omitted before.

Not what you're looking for, but I think the Byzantine Economy was run on a commodity money standard for very long period of time (1000 years) without cycles: https://en.wikipedia.org/wiki/Byzantine_economy

Would it be possible to present evidence to you that would lead you to re-examine this view? After all, the empirical record of central banks is not very favourable.

If they are worried about the price level of Euro, then the only thing they need to do to mitigate it is to conduct open market operations between the Euro and Bitcoin. This is extremely trivial to do. There's very little to be done on the infrastructure, and there are no legal (Bitcoin is not owned by anyone or covered by property laws) or international (Satoshi or the Bitcoin Foundation are not going to threaten to attack the EU if they do it) obstacles. In fact the only institutions that attempt to interfere with the trade between the Euro and Bitcoin are the financial regulators, i.e. other branches of the EU and national goverments (e.g. the German BaFin).

Michael Woodford, a Keynesian and one of the economists Krugman likes, wrote about things like this in a paper called Monetary Policy in a Wold Without Money. I wrote a critique of the panicky views, partially based on Woodford's arguments, for a German online magazine, it was published here: http://www.business-on.de/saarlorlux/alternative-digitale-waehrung-wirtschaftsforscher-sieht-in-bitcoins-grosses-potential-_id14906.html

If they are worried about the price volatility of Bitcoin, the problem with this approach is that it confuses top-down monetary systems (fiat money) with bottom-up monetary systems (commodity money). With commodity money, the function of unit of account is an emergent one, and occurs relatively late at the stage of development, at a very high level of liquidity. Until that happens, the price volatility is irrelevant from macroeconomic point of view.

Fiat money is accompanied by legal tender laws, which force you to use that money in your business accounting for the purposes of taxation. So obviously a price volatility is an issue from the beginning. Furthermore, in order for Bitcoin to be used as a unit of account, it would not only have to reach a much high level of liquidity that it has now to become a unit of account, but also out-compete fiat money to such an extent that people would not worry about violating the accounting provisions of the legal tender laws.

Empirical data also supports the emergent aspect of unit of account of Bitcoin and my argument that it's not a problem. Even though there have been many failed businesses in the Bitcoin ecosphere, as far as I know, none of them failed due to price movements.

Another possible criticism of a "global (fixed-supply) currency" I have heard is that the economic zones (or nationstates) would be "too different to be 'run' by a single currency". Is that a valid criticism?

Would it be possible to present evidence that would lead you to re-examine this view? If so, what kind of evidence?

Sorry, we meant to say it's seems pretty balanced as a report to people who know what real life is like.  This is a report meant to be read by people who know and work in banking, not by people who default to conspiracy theory and end any conversation with "becuz of guvernmint".  It is balanced because it highlights pros and cons as they apply to everyday experiences. 

Is it perfect? Psht, of course not. Is it a much better examination and explanation that what can be found in the vast majority of posts on this forum? Probably.

I dont believe there were recessions as we know them today. As far as Im concerned there was no boom bust credit cycle when we used gold and silver.

It is not clear that bitcoin will solve the world's economic woes either. There *was* once a gold standard, you know, and even then there were still market crashes, recessions, booms, and all that. Not on today's global scale, though, but that might be just as much a symptom of globalization.

Tell the truth, I wouldn't be surprised if there's a yet undiscovered fundamental law of economic systems which states that a static economy is either impossible or is a contradiction in terms. I'm thinking of something along the lines of Einstein's proof that a static universe is not possible according to general relativity.

If that's what they mean they are wrong.