7/15/2018 Can Bitcoin Replace the Dollar?

Commentary ❯ Blog

Can Bitcoin Replace the Dollar?

By Perry G. Mehrling
OCT 14, 2017 | MONEY & BANKING

Financial Gloalization and it Crptocurrenc Dicontent
Propoal for monetar reform, whether mild or radical, are alwa and everwhere informed  ome underling theor of mone.  A week ago I
pent two da talking with a group of technologit and lawer–perhap I hould a digital coder and legal coder–and preed them on thi
point.  Chatham Houe rule prevent me from aociating view with actual people, ut the view themelve are the important thing.

o far a I undertand, and it i important to emphaize that there wa not conenu on the detail, the technologit ee themelve a creating a
form of mone more trutworth than that iued  overeign tate, more trutworth ecaue the rule of mone creation (whether proof-of-
work or proof-of-take or whatever) limit iue to a  xed and  nite quantit.  carcit of the token toda, and con dence that carcit will e
maintained in ear to come, are uppoed to upport the value of the token toda.  Importantl, no uch con dence can e attached to tate-
iued mone; quite the contrar tate are een a reliale auer of mone iue for their own purpoe.  Crptocurrenc i digital gold while  at
currenc i jut paper, uject to overiue and hence depreciation.

From thi point of view, current holder/uer of crptocurrenc are jut earl adopter.  Once everone ele realize the uperiorit of
crptocurrenc, the will all want to witch over, and the value of  at currenc will collape.  The ( uctuating) propect of that eventual
witchover how up toda in the ( uctuating) exchange rate etween crpto and  at (a here).  And the ( uctuating) propect of di erent
crptocurrencie how up toda in the ( uctuating) exchange rate etween di erent crptocurrencie (a here).  According to the theor, one of
the crptocurrencie will e the future gloal currenc, replacing the dollar, ut no one know which one.  People who got into Faceook at the
eginning are all multimillionaire; earl adopter of the future gloal crptocurrenc will e too, ut which one will it e?  That’ what the lack of
conenu aout the detail i all aout.

One of the mot facinating thing aout the technologit view of the world i their deep upicion (even fear) of credit of an kind.  The
appreciate all too well the extent to which modern ociet i contructed a a we of interconnected and overlapping promie to pa, and the
don’t like it one it.  (One of m interet thee da i “Financialization and it Dicontent”, and I dare a that the dicontent of the
technologit i a deep a that of the mot committed Polanian, ut of a completel oppoite ort.)  Fiat mone i untrutworth enough,
promie to pa  at mone are doul untrutworth.  One wa around the prolem would e to require full collateralization of all uch promie,

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7/15/2018 Can Bitcoin Replace the Dollar?
mae even uing o-called “mart contract” technolog to enure that promied pament are made automaticall, aicall an equit-aed
rather than det-aed tem.  In e ect, we have here a verion of Henr imon’ Good Financial ociet, ut with peer-to-peer crptocurrenc
taking the place of hi 100% reerve mone.  imon wa of coure reponding to the gloal credit collape of the Great Depreion; the crpto are
reponding intead to the more recent gloal  nancial crii.

I view all of thi through the len of the mone view, which place anking at the center of attention, view anking a fundamentall a wap of
IOU, and view mone a nothing more than the highet form of credit.  It i view developed not o much around a philoophical ideal ut rather
a a wa of making ene of the operation of the world a it actuall exit, outide the window a it were.  In that world, the pament tem i
eentiall a credit tem, in which o etting promie to pa clear with onl ver minimal ue of mone.  And price arie from the activit of
pro t-eeking dealer who aor  uctuation in demand and uppl  tanding read to take an exce onto their own alance heet, reling on
credit market to fund the reulting inventor  uctuation.  One can imagine automating a lot of that activit–and lockchain technolog ma well
e ueful for that tak–ut one cannot imagine eliminating the credit element.  Credit i not a ug, ut a feature.

Thi point of view draw pecial attention to the place where market are eing made to convert one crptocurrenc into another, and epeciall
the place where market are eing made to convert crptocurrenc into o-called  at.  omeone or omething i making thoe market, and in o
doing expanding and contracting a alance heet, in earch of expected pro t (ee here for example).  Crpto fear credit, ut I upect the will
oon dicover that credit i a feature not a ug, and that will require them to re-examine the implicit monetar theor that underlie their coding. 
To date, technologit eem to have felt that the have nothing to learn from the operation of the exiting monetar and  nancial tem, a their
diruption i intended to replace it with omething etter.  ut from a mone view tandpoint, it i the intitution of credit that i the real
diruptor, which i fundamentall wh it i feared,  crpto and alo  the ret of u.  The anwer, a agehot long ago taught u, i not to
eliminate credit ut rather to manage it, and “Lomard treet ha a great deal of mone to manage”.

Perry G. Mehrling
Academic Council
Professor of Economics, Barnard College

hare our perpective
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Bitcoiner Brutus • 9 months ago

With high regard to the professor's exceptional expertise (I followed up after enjoying his Coursera course on
economics), I have a different perspective. Although replacing the dollar is certainly a stretch, for the time
being, currencies such as Bitcoin are not incompatible with lending/crediting. The big discontent with the
credit-driven system as run by central banks is that savers are punished - in general over time, and especially
in times of crises. As a saver, I prefer to keep my worth in something that's not going to get devalued at
someone's decision, no matter the imperative. As a substantial saver, I can be a lender, and the ecosystem to
accommodate decentralized lending is under development by multiple entities. It is, as it were, inevitable. I
can already lend out my bitcoin.

See here an article on Bitcoin credit enterprise: https://bitcoinmagazine.com...

In fact, it seems to potentially expand crediting.
Of course, the bottleneck being that there's yet a limited marketcap. Or am I missing something?
I understand that my perspective may be naive, but I am earnestly working for a balanced view, will follow, and
hope for a discussion. Regards!
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7/15/2018 Can Bitcoin Replace the Dollar?

Moslerfan > Bitcoiner Brutus • 7 months ago

"I can already lend out my bitcoin." Right, but as Eric Tymoigne make clear,
(http://neweconomicperspecti... there's a difference between "lending" and what banks do (swapping
promissory notes). In order to "lend" you have to first possess the asset and the act of "lending"
deprives you of its possession temporarily. When banks create promissory notes, most commonly in
the form of deposits, they quite possibly don't have assets to cover the promise but acquire them
through other borrowing to cover any call as necessary. This process creates the (somewhat fragile)
web of interlocking promises that characterizes modern finance.
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bixiou • 9 months ago

You seem not to share the view of Simons or other proponents of a full-reserve money. Why is that? Do you
have references on this issue?
Why not collateralizing all cash flow streams using smart contracts and trusted third parties (like the Treasury),
indeed? Why not democratizing investment decisions by creating money through a universal dividend and/or a
participatory budgeting, like duniter.org implements it?
With the credit system, only profitable projects or solvent people obtain loan and get cash. A system where
money would be created as a gift (as opposed to credit or mining) would effectively unbias our economy from
the search for short-term financial profit, don't you think?
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Bitcoiner Brutus > bixiou • 9 months ago

While I didn't fully understand your wording, I see the point that the credit system is biased to
profitable enterprises, whereas it would better include unprofitable ones, such as building a hospital.
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Shan Liyanage • 2 months ago

A must read for bitcoin economic theory http://unenumerated.blogspo...
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Shan Liyanage • 2 months ago

The entire assumption that founds Mehrling's opinion is false. Bitcoin is completely compatible with credit.
IMO, credit becomes much stronger and meaningful with bitcoin being the rock solid foundation of economic
activity.
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Bitcoiner Brutus • 5 months ago

discussion would be good!

it seems to be the case of science progressing one death at a time; the old generation don't understand
bitcoin, while the new generation is astonished how anyone can fail to see its obvious merits, especially given
how both cumbersome and speculative the legacy financial system is

it seems to me that what the profession is saying is simply that he doesn't see how there can be an alternative
to the existing credit-driven economy. neither does anyone know how it will function, but to deny the
possibility on the basis of one's lack of vision is intellectually deficit

Profession, if and when the inevitability of the rise of bitcoin will be entirely beyond question, the only way you
can stay at all relevant is to help the new clueless generation navigate the new system, call attention to risks,
using your wealth of experience. Things change.
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Jose Tomas Perez • 8 months ago

Could you recommend me a good and safe place to trade Bitcoins?
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7/15/2018 Can Bitcoin Replace the Dollar?
py

Oscar > Jose Tomas Perez • 2 months ago

I can't find one too. I'm interested in Ripple Counos coin and Bitcoin. But cant find safe place for
trading that accepts all of thoose cryptocurrencies.
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1200baud > Jose Tomas Perez • 6 months ago

2013
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