“Can a bunch of computers that are set up by a bunch of smart people do a better job [than central banks] of managing the vagaries of the world’s money supply?”
That’s the question former US Senator Judd Gregg (R-NH) grappled with in an op-ed published this week by The Hill.
Conventional wisdom says no, Gregg wrote, as it would “defy the logic of time and history” for Bitcoin or another cryptocurrency to challenge national currencies — and the central banks that manage them — for dominance in the marketplace.
Indeed, economists have even referred to the lack of a central bank to manage the money supply as Bitcoin’s “fatal flaw .”
However, Gregg, who served as chairman and ranking member of Senate Budget Committee, suggested that in this case, the “old-school view” may not be correct.
“If people accept that Bitcoin or any of its descendants have value — and if that acceptance becomes the bedrock faith underpinning the marketplace — then it will herald a new era,” he wrote. “The implications of the legitimization of Bitcoin as a currency are truly staggering.”
Central banks, he said, would be “neutered,” as they would be unable to directly manage inflation in domestic economies.
Federal governments, meanwhile, would have a much more difficult selling their debt, making it less practical to run up large deficits.
What has been called “hyperbitcoinization ” would happen first in countries with weak economies and a poor history of currency management, while strong currencies like the US dollar would likely “stand as a core element of world commerce” for at least as long as the government operates in a “marginally responsible” fiscal manner.
“But it is also possible to foresee, not too far over the horizon, a world economic structure where currencies like the dollar, the euro and the yen will be challenged by crypto-currencies that obtain generally accepted status,” Gregg adds, noting that it would lead to a “very disruptive” — potentially “traumatic” — phase of monetary history.
This may be true, but as Gregg wrote, the world’s major currencies are almost certain to retain their predominance as long as central banks and national governments behave with at least a modicum of responsibility.
When they cease to behave responsibly is when hyperbitcoinization has the best chance of coming to fruition. This will likely prove to be traumatic and disruptive. However, if federal governments and central banks have left the world economy in such a poor state that their citizens turn flee to Bitcoin or other cryptocurrencies en masse, one imagines that Bitcoin will not be the harbinger of trauma but rather the response to it.
This is why author and scholar Nassim Nicholas Taleb has said that while Bitcoin may or may not be more convenient to use than other payment systems, it is an “insurance policy ” against government mismanagement.
Bitcoin’s “mere existence is an insurance policy that will remind governments that the last object establishment could control, namely, the currency, is no longer their monopoly,” Taleb concluded in a recent blog post. “This gives us, the crowd, an insurance policy against an Orwellian future.”
Featured image from Flickr/City Year .
