Two broadsides from central bankers in the last 24 hours - the US Federal Reserve and my antipodean cousins in the Reserve bank of Australia.
Today the Chairman of the US Federal Reserve passed comment on Bitcoin, saying:
"[Bitcoin] is not a stable store of value, it doesn't constitute legal tender, and it is a highly speculative asset."
Image: Courtesy of Yahoo Finance
Not a "stable store of value"? How have your GBP, USD, AUD or other fiat currencies performed over your lifetime? Take a simple example, a Mars Bar (I like chocolate) was GBP 0.03 in 1961 and now is about GBP 0.60 - ignoring the weight changes - this represents a 20 fold increase or a loss in GBP value of around 95%. Every fiat currency is in the same boat with some losing their value completely (eg. Zimbabwe). Fiat currencies have a proven record of losing value. Bitcoin, however, has shown that it can clearly buy more Mars bars than most people could eat in a lifetime.
Image: Courtesy of Google
Bitcoin does not "constitute legal tender". Fact. By law no crypto-currency is legal tender as government monetary policies rely on control of the "legal" money supply. Technically, anyone transacting in a non-fiat currency could be classified as an outlaw (operating outside of the law). Yet major businesses are now starting to transact in crypto-currency. In many countries a system of barter still exists for everyday living, also lots of countries have "swap-meets". Bitcoin is not legal tender; however, whether it is Bitcoin or another crypto the willingness of a buyer and seller to exchange (barter) crypto for another item simply makes both items a form of money.
Image: Courtesy Google
Finally, "it is a highly speculative asset". Speculative - yes there is certainly a fair amount of speculation going on in the crypto markets at the moment, but this is no different to what has happened with resources (especially precious metals), land, etc over many hundreds of years. An "asset" by definition is "a useful or valuable thing". Well at least the Fed thinks Bitcoin is a useful or valuable thing.
Yellen went on to say with respect to regulation of Bitcoin that the Fed expects the banks it does supervise would comply with any anti-money laundering rules that any digital currency transactions could touch.
Now if the Fed was really serious maybe it should consider that many banks "by default" handle currency transactions that are involved or have been involved in money laundering - they simply cannot avoid it. Further, according to the United States Department of Treasury, an estimated $70 million in counterfeit bills are in circulation, or approximately 1 note in counterfeits for every 10,000 in genuine currency, with an upper bound of $200 million counterfeit, or 1 counterfeit per 4,000 genuine notes. Apparently neither the Fed, Treasury nor the banks can control this aspect of the "legal" money supply.
Governor Lowe of the Reserve Bank of Australia in a speech to the Australian Payment Summit stated:
"[Bitcoin] seems more likely to be attractive to those who want to make transactions in the black or illegal economy, rather than everyday transactions. So the current fascination with these currencies feels more like a speculative mania than it has to do with their use as an efficient and convenient form of electronic payment."
Image: Courtesy of RBA
One can only wonder from where RBA Governor Lowe received his information.
It actually SEEMS that the learned Dr. Lowe , in his role, can make outlandish and totally unsubstantiated statements - how do Australian cousins feel when you are either classified as a "criminal" or "speculator" - I like to think many are simply trying to make a living and looking out for opportunities.
On an eAUD (digital Australian dollar) he summed up saying the RBA does not see a case for it at the moment. My interpretation is that the RBA, Treasury and Australian Government are still working out the detail that will wrest control of the monetary system back from the man in the street.
On a final note the new NZ labour-led government has given the new traditional economist RBNZ Governor a mandate to achieve low unemployment through monetary policy.
Last time I checked our NZ cousins had a national debt of around NZD 15,000 per person (lower than the UK, Australia, USA and Japan). Are we going to see RBNZ entering into a form of Quantitative Easing in the next few years - I suspect so.
I wonder if it is time to get out of town?
Any thoughts?
