If you’re reading this article, you probably already know that El Salvador recently made bitcoin legal tender. the dollar will also continue as legal tender in the Central American nation.
Bitcoin is said to allow Salvadorans working outside the country to send remittances much more easily and securely. The big jump for the once dark middle no doubt has some starry-eyed crypto optimists about the future of decentralized money. el salvador is surely the beginning of the increasingly common circulation of bitcoin.
Reading: Bitcoin isnt change.
enthusiasts would do well to curb their enthusiasm.
bitcoin is not about to replace the dollar or any other widely circulated form of money. While there are many things they don’t like about the dollar, the creators of bitcoin don’t know why they don’t like the dollar.
for the thoughtful libertarians among us who aren’t quite sure why they’re libertarians, bitcoin is logically superior because it’s not “government money”. fair enough, at first glance. except that the lack of confidence in the dollar is not because it is government money; there are not a few who disdain the greenback because it lacks stability as a measure. more than that, they hate when the dollar is devalued. stop and think about it.
money is not wealth. money is an agreement on value that facilitates the movement of wealth. I’ll pay you $10 for your crisp apples and you’ll sell them to me because you look longingly at the butcher’s ribeye. money predates government simply because money is as old as commerce. for as long as producers have been producing, they have used a variety of forms of money (value agreements) to exchange their surplus with others eager to “get” their own surplus.
gold eventually became the “money par excellence” (marx) because its price was so constant. when gold moves, it is a consequence of the currencies in which it is quoted going up and down. which is why currencies have been defined for so long in terms of gold. The connection between gold and money for thousands of years has not been a random association but a logical conclusion of the market: an agreement on value facilitates most trade between producers if its value is held constant. the golden constant married money and, logically, trade took off.
Going back to the honeycrisp/steak example, hopefully it’s a reminder that no one exchanges money. all trade is product by product; money simply the value deal that allows producers of disparate output and wants to relentlessly exchange with each other. but since money is the measure that unites us, confidence in the measure is of paramount importance. gold was once again connected to money long ago to boost confidence among producers eager to trade; trade the central objective of production.
except that money hasn’t had a stable definition since the early 1970s. Keynesians, monetarists, and mercantilists to varying degrees fell for the fantasy that a “floating” or reduced measure would boost prosperity, which was and It’s the equivalent of a short basketball player shrinking an inch to get the attention of the NBA. explorers no one would be fooled. no one is fooled by unstable and unreliable money either.
Evidence supporting the above statement is the fact that currencies are traded daily to the tune of almost $7 trillion. no one trades feet or inches simply because they are a uniform length. money used to have qualities of feet and inches. now its value is largely ignored by the us. uu. treasury, which means endless transactions take place every day to mitigate shocks to the dollar, along with those to other currencies.
Seen through the prism of the honeycrisp owner and the butcher, the ribeye owner doesn’t exactly glee in giving away a tangible piece of meat for dollars that might be worth less, and then trading it for much less. which explains the frenetic currency trading. Since currencies aren’t as reliable as they used to be, we need to protect all sorts of products for commodity transactions to at least somewhat protect producers from being scammed when they trade real goods for “money” that bounces in value.
Viewed from a bitcoin perspective, hopefully readers can see where this is going. bitcoin and other forms of private money can be said to be a market response to “government money” that hasn’t been very reliable since the early 1970s (a dollar bought 1/35th of an ounce of gold in 1971, now buy about 1/1800), but there would probably be very little interest in cryptocurrencies if “government money” was stable the way it used to be.
Of course, the problem is that bitcoin’s volatility as a measure makes the dollar look pretty stiff by comparison. Put another way, bitcoin magnifies the worst qualities of the dollar many times over. and it’s not going to get better.
Indeed, when it comes to “money,” the focus may be on price stability or supply; never both. the creators of bitcoin have made it clear that the supply will not be elastic, which means that its price will be much more than elastic. the above truth no doubt pleases the monetary cranks among us who think that “inflation” is a phenomenon of increasing the “money supply” rather than being a logical consequence of currency devaluation (two very different phenomena) , but bitcoin being a limited supply-concept, it can logically never exist as money. what is speculation, and bitcoin is speculation, it rarely does.
Then pretending that what is wildly volatile speculation (“I’ll pay you in bitcoin.” okay, what bitcoin?) will replace the less volatile “government money” is not serious. It won’t happen in El Salvador, and it won’t happen in the United States.
This is not to say that cryptocurrencies won’t replace the dollar and other “government” currencies in good circulation. of course it could and should. good money is a stable measure of value, and right now government money is not keeping up with its turnover. bitcoin neither. you won’t make it. the bet here is that amazon amzn , target tgt , facebook and other private funds rooted in stability will eventually do it.