Bitcoin andolfatto bitcoin been hailed as the future of currency but its detractors say its doomed to failure and extreme volatility because of andolfatto bitcoin exchange lack of regulation and state backing. Now economists are considering an alternative federally backed cryptocurrency fixed to the U. David Andolfatto, an economist for the Federal Reserve Bank of St.
Louis, published a blog post on Feb. The key difference between Andolfatto’s Fedcoin and cryptocurrencies like bitcoin is that it would have a fixed exchange rate with the U. This would solve what many say is bitcoin’s main problem — its volatility. Reddit AMA that he likes bitcoin but his foundation cannot use the currency for a basic reason. Critics of the idea could argue that the entire point of a currency like bitcoin is that it is not linked to a state-run currency and could promote an economy not controlled by governments. Andolfatto is not suggesting that Fedcoin be used as an excuse to ban current cryptocurrencies, but rather it could be launched as a competitor offering more stability than the likes of bitcoin.
Sign up for our email newsletter today. Tech Times’ biggest stories, delivered to your inbox. What’s happening in monetary policy and macroeconomics. In most respects, President Erdogan of Turkey is not known for his progressive instincts, but in economic policy he may be the only convinced Neo-Fisherite on the planet who potentially has any power over monetary policy decisions. Since 2004, inflation has been much lower than over the previous 20 years, and much more stable. What has the Turkish central bank been doing, and what does it propose to do in an attempt to hit its inflation target?
So, you might conclude that the Turkish central bank is not capable of reducing inflation. Believe those who are seeking the truth. Before talking about policy, what is a “blockchain technology? Like a lot of new terms that are bandied about, it means different things to different people.
But for my purpose, I’m just going to think about it as a different way to keep account of information. Now, it just so happens that money is just a type of ledger, as I explain here: Money and Payments, or How We Move Marbles. In what follows, when I speak of cryptocurrencies, I’ll I focus on Bitcoin, first, because of its relative popularity, and second, because it’s designed to compete directly with central bank money and payment systems. But what I have to say pertains more broadly to all innovations in this space. Viewed from this perspective, Bitcoin presents central banks with an old and familiar threat: currency competition.
The willingness and ability of domestics to substitute into a competing currency with a more stable value will put limits on the ability of a government to use the inflation tax as a revenue device. Governments sometimes go to great length to restrict the use of currency substitutes. Maturity transformation using a foreign currency. While Bitcoin is unlikely to displace a major world currency any time soon, it’s likely to play a prominent role in certain niches. I am reminded of the role the USD plays in some countries.
Lender-of-last resort interventions are not limited to central banks, after all. A safe asset is not a risk-free asset–it’s an asset that people flock to in times of crisis. They are more accurately described as “flight-to-safety” assets. The standard macroeconomic model typically assumes that securities are exchanged in frictionless financial markets, where trade is instantaneous and property rights are enforced at zero cost. Needless to say, this abstraction is ill-suited for the purpose of understanding monetary policy. But I am not so sure. Diamond and Dybvig model, does not rely on the existence of opacity in the financial market.
In that model, the portfolios of banks are perfectly transparent. A bank run may nevertheless be triggered by the expectation of a mass redemption event, which subsequently becomes a self-fulfilling prophecy. The world is now changed and we must deal with it. Among other things, there is no reason why, in principle, central banks could not offer online digital money accounts for the public. There are so many more things to discuss, but I think I’m at my limit for blog post length.
If you have ideas to share, or papers to link to, please feel free to comment below. Footnote 1: Naturally, one would never want anything to trigger a mutually-assured-destruction clause in a contract. And such an event would never occur, theoretically at least, if everyone is perfectly rational. Few people need to be convinced that this assumption is rather extreme. And what if BTC is regarded a safe asset in our next crisis, the way CUF is perceived to be in Europe? If this happened in the U. There might be a reduced demand for USD, but presumably the Fed could just reduce the supply of USD by the same amount, to prevent price inflation measured in USD.