Don t be afraid of bitcoin – Czech National Canap

Don t be afraid of bitcoin - Czech National Bank

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Mojmir Hampl ( 31. 7. 2018, Vol. 8 Ed. 31.1)

Elastic money is key to price stability

Prague is huis to a strong community of cryptocurrency volgers and users. The city even has a cafe where customers can pay only te bitcoin. Many users of digital currency see it spil a viable alternative to the current monetary system. They even question whether institutions such spil the Czech National Canap should be afraid of bitcoin and other independent currencies, and of their power to marginalise traditional money.

There indeed is no reason for banks to fear them. All of the alternative currencies are negligible te terms of size and scope: electronic transactions using bitcoin worldwide amount to only 16% of the electronic transactions conducted te the Czech koruna, a currency used by just Ten.5m people.

A more fundamental punt is bitcoin’s permanently switching purchasing power. Money is a means for paying and lodging transactions, a unit of account and a store of value. Swift switches ter purchasing power are the enemy of any good currency. If a currency is losing value, people want to get rid of it quickly. Te tegenstelling, if it is gaining value, they hoard it.

The key principle of bitcoin is that its supply will be motionless, which makes it inherently volatile. This is the antithesis of our elastic money system, which is based on the principle that to keep the purchasing power of money relatively onveranderlijk the amount of money has to switch flexibly overheen time. The monetary policy lesson of the late 19th and 20th centuries is that price stability matters. People may take it for granted but this is the most beneficial feature of money te its present form and the monetary policy behind it. People can use a currency and not even think about why they trust it.

Central bankers have failed to explain that one of the key reasons for their deeds during and after the 2008 financial depressie wasgoed to maintain price stability. This sometimes required unorthodox policies.

People tend to be worried about too much money being ‘created’, but they typically have little idea about the size of the money supply. When I ask well-educated audiences, I often get frantically wrong estimates for the money supply but fairly precise ones for the inflation rate. Price stability, not money supply, matters.

Spil long spil central bankers abide by this principle, there is no reason to fear that our existing monetary system will be substituted by a fixed-money alternative.

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