US Central Bank: Bitcoin Little Better Than Common Currency

May 4, 2018

Content strategist at the Federal Reserve Bank of St. Louis Christine Smith has recently stated, Bitcoin is not that exotic and way more casual than it seems for many people. Bitcoin enables two options for use: as a store of wealth and a currency, so Smith believes there are three main reasons for the leading digital currency is little or no different from the conventional ones.

No Backing

Just like USD Bitcoin is not backed by any physical assets like gold. Its value is a result of demand which has currently set the price at $9,700.

Smith cites Federal Reserve economists who used to claim earlier that “bitcoin units have no intrinsic value” like USD, euro or Swiss franc.

The US government has refused from gold standard in the times of depression and left its system ties in the 70s. Since then money issued by the Federal Reserve hasn’t been gold backed yet did not lost its value.

Limited Supply

Another point is about finite number of bitcoins that can actually be mined. As our Telegram-channel said recently, gross Bitcoin supply is limited to 21 million. According to Smith, demand and supply rate for Bitcoin and other cryptocurrencies is the primary cause for volatility on the market.

Meanwhile, contrary to the common opinion the Fed does not print money, as she says, but increases or cuts monetary base (reserve banks’ balances + money in turnover). As on the first quarter of 2018 1.63 trillion dollars were in circulation. Smith says, it’s hard to believe but deficit underlies the Fed strategy on monetary system stability as money supply must be limited to keep its value.

Decentralization

Finally she mentioned the initial view by Satoshi Nakamoto:

“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

While decentralized nature of Bitcoin makes it stand against fiat currencies, Smith finds resemblance in the fact that money get spent without any third party involved into transaction processing. She also notes anonymity which is often associated with fiat money. As for Bitcoin, unlike the founder of the currency, all transactions are stored in easily trackable public registry.

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