Can Bitcoin Replace Central Banking? A Debate

Listen to economists Saifedean Ammous and George Selgin face off at the Soho Forum.

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Can Bitcoin Replace Central Banking? A Debate

Bitcoin is poorly suited to the purpose of becoming any nation's main medium of exchange.

That was the topic of a public debate hosted by the Soho Forum in New York City on August 12, 2019. It featured George Selgin, director of the Center for Monetary and Financial Alternatives at the Cato Institute, and economist Saifedean Ammous, author of The Bitcoin Standard: The Decentralized Alternative to Central Banking (2018). Soho Forum Director Gene Epstein moderated.

It was an Oxford-style debate, in which the audience votes on the resolution at the beginning and end of the event, and the side that gains the most ground is victorious. Ammous prevailed in the debate by convincing 23 percent of audience members to change their minds.

Arguing for the affirmative was Selgin, whose books include Less Than Zero: The Case for a Falling Price Level in a Growing Economy (2018) and Floored! How a Misguided Fed Experiment Deepened and Prolonged the Great Recession (2018).

Ammous argued for the negative. An associate professor of economics at Lebanese American University, Ammous is also teaching an online course in bitcoin and Austrian economics.

The Soho Forum, which is partnered with the Reason Foundation, is a monthly debate series at the SubCulture Theater in Manhattan's East Village.

Music: "Modum" by Kai Engel is licensed under a CC-BY creative commons license.

Audio production by Ian Keyser.

Comments

[JesseAz]

No.

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[AlmightyJB]

Catch-22. Until you have widespread use and acceptance as a form of collateral (as opposed to just being a Beanie Baby investment vehicle), you're going to have significate volatility in price. As long as you have significant volatility in price, you won't have widespread use and acceptance as a form of collateral. Another question, was the ability to slowly, and only slowly, increase the money supply when backed by precious metals an important quality to have or not for a base of currency? I've only had one cup of coffee this morning so nit really ready for monetary economics theory just yet:)

[JesseAz]

You're forgetting the federally backed accounts in case of banks going under.

[Metazoan]

Bitcoin isn’t fractional reserve though, so a lot of that problem goes away.

[JesseAz]

Economy has been established on stability of currency, something bitcoin has never shown. Unstable currency leads to what you see on collapsing countries. There has to be some sort of ratio al stability to a currency or it wont work.

[TJJ2000]

The green-back has a long way to go to be, "stabile currency" and it was (during Obama Administration) getting way worse. I guess since its "stability" can be almost bet upon to be a perishable good, unlike bitcoin, I guess it could be considered more stable in that respect.

Stably loosing value every day.

[AlmightyJB]

That is true but currency inflation is "typically" predictable with the obvious caveats, whereas Bitcoin is very volatile.

[zoyascoot]

Bitcoin has surged to never-before-seen highs over recent weeks, breaking through to levels that seemed unimaginable just a few months ago.

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[CE]

yeah, if a currency consistently loses value every year, you know the value of what you're getting paid with.

[Hdk]

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[TJJ2000]

"Until you have widespread use and acceptance as a form of collateral" -- Perfectly said!

[CE]

If Bitcoin can be used to pay your taxes and keep you of jail, it will have value. That's where FRNs get their value.

[HIndiTechBlogger]

Thanks for the post i think it will not replace that but there will be a huge space for bit coin

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[Ken Shultz]

Whether some form of cryptocurrency could become the main medium of exchange for any country is a different question from whether it should. Seems unlikely that the U.S. would adopt some preexisting currency like Bitcoin or Ether. More likely that the \y would issue some U.S. crypto-dollar of its own--freely convertible to the U.S. dollar at a one-to-one ratio.

The treasury would burn old paper dollars when it released new crypto-dollars into the wild, just like it does now when it burns old worn out paper money as it introduces crisp new bills. Over time, paper dollars would become scarce like buffalo nickles, but people would still be free to use paper money throughout the transition period, which might last a decade or more.

[Ken Shultz]

Of course, there are all sorts of privacy and control downsides from a libertarian perspective. With blockchain permeating and tracking everything from digital to physical distribution, it would be easy for the government to use a U.S. dollar crypto-currency to restrict the purchase, sale, and delivery of anything the government doesn't like--from guns and ammunition to web content and video media.

There isn't anything about technological progress that is necessarily beneficial or beneficial to everyone equally. If nuclear power saves the future from global warming by providing a cheap source of safe, renewable energy, that'll be great for some people. The people of Hiroshima and Nagasaki circa 1945 might just as soon wish nuclear power had never been discovered. The Cold War sucked, and that was in no small part attributable to the discovery of nuclear power.

This isn't to say that technological progress can be effectively opposed or should be opposed, but it is pointing to the biggest obstacle to the adoption of crypto-currency by the U.S. government--which is the opposition of our more populist impulses to elitist control. If the American people don't trust elitists to use cryptocurrency in ways that don't harm them, then their opposition to the adoption of cryptocurrency will continue to grow. It's the same thing with climate change, immigration, and a host of other issues, too.

Elitism is the ultimate obstacle to the adoption of technological change by government, and the solution is not for the elitists to lean in even harder to force their solutions on the unwilling. In fact, elitism might be defined as the attempt to inflict solutions with highly subjective qualitative downsides on an unwilling population over their objections and against their will. That always produces the same reaction, which is called "populism", defined (whether coming from the left or right) as a reaction to elitism.

If the U.S. government ever adopts a crypto-currency as its main medium of exchange, it will probably only happen after the advocates of doing so abandon their elitism. Personally, it's easier for me to imagine populists getting on-board with crypto than it is to imagine elitists abandoning their elitism. For elitists, their elitism seems to drive everything about them. What's the point of being an elitist on climate change, immigration, or crypto-currency if you can't lord over people?

[BigT]

Bitcoin, as it was described, is distributed over many account registers, so the government cannot control it; no one can. Thus, in theory, your concern is unfounded. The government might simply cut off internet access, much as it does in China. That’s probably the most troubling issue. Another point made in the debate is that the transactions are ultimately traceable, so not anonymous.

More concerning to me is that only about 10% of all transactions are now made in cash. An intrusive government could make someone a non-person if it gets its fingers into the banking system. Gillespie’s podcast mentioned an instance of this happening, again in China.

[Ken Shultz]

"Bitcoin, as it was described, is distributed over many account registers, so the government cannot control it; no one can. Thus, in theory, your concern is unfounded."

Here's what I wrote:

"Seems unlikely that the U.S. would adopt some preexisting currency like Bitcoin or Ether. More likely that the [treasury] would issue some U.S. crypto-dollar of its own–freely convertible to the U.S. dollar at a one-to-one ratio."

----Ken Shultz

They'll give up a little control of the money supply by adopting a Friedman style 2% rule before they give up control of the money supply entirely by adopting a preexisting crypto-currency as the main medium of exchange. And they aren't about to adopt a Friedman style 2% rule anytime soon either.

Starting their own crypto-currency pegged one-to-one on the dollar would allow them to continue to control the money supply.

Furthermore, it wouldn't be disruptive to the current economy by having two official currencies in circulation or forcing everyone to adopt a new currency like they did with the Euro.

Furthermore, starting their own crypto-currency pegged to the dollar wouldn't be disruptive to world markets in things like oil or in countries that use the U.S. dollar as their official currency.

Again, if the question of whether the US could adopt a preexisting cryptocurrency like the dollar, my answer might be no--just based on the politics involved.

But why wouldn't the government simply avoid all that by starting their own cryptocurrency and pegging it one to one to the dollar--and allowing both currencies to coexist?

[BigT]

I understand what you wrote,, but the question is not whether the US gov would adopt Bitcoin - it cannot due to the distributed nature - but whether Bitcoin could be adopted by the people as a (the?) chief means of exchange. The US or other govt could try something similar - not Bitcoin - but most people would see the same, or worse government control in a govt bitmoney. I would expect an Iran or NoKorea or China to try this long before the USA.

[Brett Bellmore]

"Bitcoin, as it was described, is distributed over many account registers, so the government cannot control it; no one can. "

Technically, I believe that, as it's currently implemented, once over half the bitcoin processing power is under the control of one entity, that entity is able to screw with it in a number of potentially profitable ways.

[Jerryskids]

"Can" is a different question than "will" or "should".

Personally, I think central banking is more apt to be replaced by the barter system than by bitcoin or any cryptocurrency. Ammunition, gasoline, bottled water, MREs and Neosporin will be the most commonly-used mediums of exchange.

[Jerryskids]

The problem is, I don't think the central bankers are too keen on being replaced. The central central bankers operate out of Brussels (or their secret lairs beneath the Vatican or beneath the Swiss Alps or whatever) and their objective is a single global currency, an end to the dollar as the world's reserve currency and a cashless society where you're essentially going to need a co-signer on every financial transaction with that co-signer being a government official. (Of course everybody knows the government's PIN is 666, the Mark of the Beast, so it's an easy hack-around.)

So while I agree that at some point we're probably going to see some sort of "cryptocurrency" dominate, it's going to be something like the Libra with a government backdoor built in and ignorant people who don't know the difference between digital and crypto think they're getting a currency free of governmental control when what they're really getting is a currency even more tightly controlled by the government. (Sort of like when they call for more government oversight of Facebook/Google data-gathering and -control capabilities and think it's going to be some free speech/privacy advocates running the oversight rather than the NSA.)

And what if some cryptocurrency begins replacing the dollar? What happens to that shitload of dollars floating around out there in international trade that amounts to a free loan to the Fed? Those dollars start coming back home and where are they going to go? (Or what if some jackass starts a trade war that significantly impacts trade to the point where those trade dollars are no longer needed?) We're already awash in debt and everybody's spending as fast as they can, it's difficult to see how we've got any more room for expansionary spending. When you've got countries issuing negative-rate bonds where you're charging them to loan you money and paying them to borrow money, what else can you do?

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[Emir Shah]

Bitcoin will definitely the future of the world

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No, I don't think Bitcoin Replace Central Banking!

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Digital currencies are the future of the monetary system.

[Linkbazaar]

Unlikely that this will ever happen. Government wont let this happen they love control.
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