As I described in this earlier post, I view a payment system as a protocol (a set of rules) for debiting and crediting accounts, I view money as widely agreed-upon record-keeping device, and I view monetary policy as a protocol designed to manage the supply of money over time.Currency bankers do not set times or terms. The set the likelihood that a deposit matches a loan. The odds condition determines whether a good is in short or long supply, based on the willingess of purchasers to take a loan and buy more of it. Time has nothing to do with it and betting time is the reason we default once a generation.
Bitcoin is used in domestic transactions everywhere.
What is the main problem with bitcoin as a monetary instrument in an economy like the U.S.? It is the same problem we face using any foreign currency in domestic transactions--the exchange rate is volatile and unpredictable.
Fixed exchange rates do the work because price discovery in each domestic nation is independent. Currently bitcoin mostly does price discovery on exchange rates. That makes it ideal for foreign trade, and that is where bitcoin seems to be going. It is increasingly popular with foreign travelers because they do not need FX conversion. Hotel and airlines like it for the same reason. Bitcoin is unlikely to become anyone's complete domestic currency.
What justifies my claim that the Fed has a comparative advantage over some private enterprise that issues (say) BTC backed by USD at a fixed exchange rate? The problem with such an enterprise is precisely the problem faced by countries that try to peg their currency unilaterally to some other currency. Unilateral fixed exchange rate systems are inherently unstable because the agency fixing the BTC/USD exchange rate cannot credibly commit not to run out of USD reserves to meet redemption waves of all possible sizes. In fact, the structure invites a speculative attack.
The tax dollar and Fecoin will mostly measure government functions, as in having a 2.4T pile of government bonds and no banking assets in its sheet. Plus the Fed has no free entry and exit so its banks are limited to those willing to guarantee government debt needs. Value points from retailers will have a greater impact on the economy then Fedcoin. Value points measure the marginal changes in goods flow much more accurately than the government debt dollar could.
Why have a Fedcoin?
Don't need it, Swift works just fine. The central banks will always focus on government debt fulfillment rather than flow of private sector good and will likely get about 50% market share, where as today is has about 75%
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