If you are reading this article, you probably already know that El Salvador recently declared Bitcoin legal tender. The dollar will likewise continue as legal tender in the Central American nation.
Rumor has it that Bitcoin will make remittances much easier and more secure for Salvadorans working outside the country. The giant leap for the once obscure medium undoubtedly has crypto-optimists with stars in their eyes on the future of decentralized money. El Salvador is surely the start of an increasingly common circulation of Bitcoin.
Enthusiasts would do well to curb their enthusiasm.
Bitcoin is not set to replace the dollar, or any other widely used form of money. While there is a lot to hate about the dollar, the creator (s) of Bitcoin is unsure why the greenback is not valued.
For the reflexive libertarians among us who are unsure of why they are libertarians, Bitcoin is logically superior because it is not “government money”. Fair enough, at first glance. Except that the lack of confidence in the dollar is not because it is government money; rather that a few scorn the greenback because it lacks stability as a measure. More than that, they hate it when the dollar is devalued. Stop and think about it.
Money is not wealth. Money is a value deal that facilitates the movement of wealth. I’ll pay you $ 10 for your HoneyCrisp apples, and you’ll sell them to me because you longingly gaze at the butcher’s rib eye. Money predates government just because money is as old as commerce. Since producers began to produce, they have used various forms of money (value agreements) to exchange their surplus with others who want to “get” for their own surplus.
Gold eventually became “the silver par excellence” (Marx) because its price was so constant. When gold moves, it is a consequence of the fluctuation of the currencies in which it is valued. This is why currencies have so long been defined in terms of gold. The link between gold and silver for thousands of years has not been a random association, but a logical conclusion of the market: a value agreement facilitates trade between producers the most if its value is considered to be. constant. The golden constant was married to money, and trade logically took off.
Going back to the Honeycrisp / ribeye example, this is hopefully a reminder that no one trades money. All commerce is product for product; money is just the deal of value that allows producers of disparate production and wants to trade relentlessly with each other. But since money is the measure that binds us together, confidence in the measure is of the utmost importance. Gold was once again linked to silver a long time ago to build confidence among producers willing to trade; trade the central objective of production.
Except that money has not had a stable definition since the early 1970s. Keynesians, monetarists and mercantilists to varying degrees fell into the fantasy that a “floating” or shrunken measure would increase prosperity, which was and is the equivalent of a petite basketball player who shrinks the thumb in order to get the attention of the NBA. scouts. No one would be fooled. No one is fooled by unstable and untrustworthy money either.
The evidence to support the above assertion is the fact that currencies are traded daily to the tune of nearly $ 7 trillion. No one swaps feet or inches just because they are of uniform length. Money had qualities of feet and inches. Now, its value is largely ignored by the US Treasury, which means endless trading takes place every day to dampen fluctuations in the dollar, as well as other currencies.
Seen through the prism of the Honeycrisp owner and the butcher, the rib eye owner doesn’t really enjoy giving away a tangible cut of meat for dollars that might be worth less, and then trade for much less. This explains the frenetic currency trading. Since currencies are not as reliable as they used to be, we need to cover all kinds of product-to-product transactions to at least somewhat protect producers from scams when exchanging real goods for ‘money’ which the value bounces back.
From a Bitcoin perspective, I hope readers can see where this is going. Bitcoin and other forms of private currency are arguably a market response to ‘government money’ that has not been very reliable since the early 1970s (one dollar bought 1/35e of an ounce of gold in 1971, now he buys around 1/1800e), but interest in cryptocurrencies would likely be drastically reduced if “government money” was stable as it used to be.
Of course, the problem is that Bitcoin’s volatility as a measure makes the dollar look rather stiff in comparison. In other words, Bitcoin amplifies the worst qualities of the dollar many times over. And it’s not going to get better.
Indeed, when it comes to “money”, the emphasis may be on price stability or on supply; never both. Bitcoin’s creator (s) have made it clear that the supply will not be elastic, meaning its price will be much more than elastic. The foregoing truth undoubtedly appeals to the monetary cranks among us who believe that “inflation” is a phenomenon of increasing “money supply” as opposed to a logical consequence of currency devaluation (two very different phenomena). , but with Bitcoin being a limited concept offer, it logically can never exist as money. Which is speculation, and Bitcoin is speculation, rarely does.
Then pretending that what is extremely volatile speculation (“I’ll pay you in Bitcoin.” Okay, which Bitcoin?) Will replace less volatile “government money” isn’t serious. It won’t happen in El Salvador, and it won’t happen in the United States
That’s not to say that cryptocurrency won’t replace the dollar and other well-publicized “government” currencies. Of course it could, and should. Good money is a stable measure of value, and right now government money is not living up to its billing. Bitcoin either. It won’t. The bet here is that Amazon