By Judd Gregg, opinion contributor — 01/29/18 06:00 AM EST 78
The views expressed by contributors are their own and not the view of The Hill
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Bitcoin, of course, has none of this. It has a complex, deep algorithmic structure that is said to limit its availability. People put value on it because of this opaque source of its existence — and because they want to.
It could be compared to gold, which has value only because it is scarce and has been accepted for years as a medium of trade and commerce.
Gold also has no national economy behind it. It does, however, have a large number of central banks that hold it in the name of the solvency of those banks. In turn, those banks are the architects of the currencies of their country.
Bitcoin, however, is not a reserve held by central banks — at least not yet.
Bitcoin and its emulators are out there. They are somewhere in the cyber-sphere of digital technology, energized by the faith of those who developed them and those who accept them as having value.
Bitcoin is alleged to be the currency of the future — a currency that is unattached to any nation, devoid of the politics of any government and free from the dominance of any central bank.
It sounds pretty good. In fact, it sounds so good that one is temped to say, “Throw in some pixie dust and it is off to never-never land.”
However, that would be too traditional a view. Bitcoin could indeed alter the entire world of commercial transactions.
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.
The implications of the legitimization of Bitcoin as a currency are truly staggering.
Governments and central banks will be greatly marginalized in their roles as the arbiters of the world economy.
A central bank that wants to affect the money supply could be muted in its ability to do so.
This has substantive implications as to how a government, through its central bank, manages inflation and the general interests that dominate its economy.
In a world where Bitcoin or its successors are generally used, the central bank is to a large degree neutered.
A federal government that confronts a Bitcoin economy also must deal with some stark implications.
For example, if you run up a large deficit in your national currency, how do you get folks to buy your debt if it is not Bitcoin-denominated?
Even if a nation’s currency is valued to some degree and the society has not completely flipped into a crypto-currency market, the ability to sell debt in a national currency will be significantly chilled — and likely much more expensive.
All of these changes are at the more modest end of the spectrum in terms of what we can expect from a general acceptance of a crypto-currency world. The unintended and not-yet-considered effects will be dramatic.
A Bitcoin global economy, or anything resembling it, will be a stark departure from all that has gone before it in world economics.
Since this appears to be a potential race to the depths of the digital world, the winner will be the currency that gains acceptance.
It might be like today’s world where there are a great many currencies, issued by almost every country or group of countries, that are used and accepted with their value adjusted for the strength of the nations issuing the money.
There could be numerous crypto-currencies made up of numerous forms of backing or structure. None would have a national economy behind it or a central bank creating and regulating it.
Alternatively, there could be a shaking out, with one or two surviving crypto-currencies that are reputable enough to be generally accepted.
These would be extra-governmental and internationally viable “uber-currencies.” Without controls or limits, they would be free of every traditional arbiter of valuation except for the most important one: the confidence of the users.
Where does the American dollar end up in all this disruption?
The dollar has been the stabilizer of world commerce and shelter from the storms of economic instability since the end of the Second World War.
It seems there will always be a need for a currency that is backed by something other then the faith of its holders in its value.
As long as the American economy is viable and the federal government is at least marginally responsible in its accumulation of debt, it is difficult to project a time when the dollar will not stand as a core element of world commerce.
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.
Can a bunch of computers that are set up by a bunch of smart people do a better job of managing the vagaries of the world’s money supply?
It seems doubtful, but then that is an old-school view. To the techies of this world and their followers, it seems very plausible.
If they are right, then we are in for some very disruptive, traumatic and unpredictable times in the business of printing — or should one say digitalizing — money. Judd Gregg (R) is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and as ranking member of the Senate Appropriations Foreign Operations subcommittee.
