When bitcoin becomes the global reserve currency, central banks will not go extinct, but they will have to evolve.
This is an opinion editorial by Jonathan Garner, Bitcoin, finance and economics blogger at The Capital.
If Bitcoin really did become a global reserve currency, that would mean the days of the US dollar were over. What would our daily life be like under a bitcoin standard? And what would that mean for bitcoin?
It would apparently mean things would be priced in bitcoin in the store. In other words, bitcoin would function as a unit of account. So instead of things being priced in US dollars around the world, things would be priced in bitcoin. I admit that it is still early and probably a long time away, but it is still possible despite the fact that Bitcoin remains quite volatile, at least compared to the current global reserve currency of the US dollar.
Contrary to what some people seem to think, my opinion is that Bitcoin is already a currency. Bitcoin is a medium of exchange, which is why bitcoin is, in fact, called “cryptocurrency” rather than “cryptostore of value” or “crypto-gold” (although, admittedly, bitcoin is those things, too). This isn’t just science fiction either. Bitcoin is already being used as currency in certain places, such as El Salvador. When bitcoin is the global reserve currency, everyone will use bitcoin as a currency in this way. In short, Bitcoin is money. It is a medium of exchange, store of value and unit of account.
The legacy system in a Bitcoin standard
The bitcoin standard would mean that central banks would and should hold bitcoin on their balance sheets. Perhaps this would mean that central banks would no longer be needed, but like any governmental or quasi-governmental agency, that does not necessarily mean that they will disappear. Central banks will hold bitcoin because it will give their countries an advantage over other countries where central banks do not. The freer a country is, the stronger it is against other countries. Bitcoin is freedom. Bitcoin is freedom from financial oppression.
The bitcoin standard would also mean that the bond market would be superfluous, as described in “The Bitcoin Standard”, or at least most would be. Under bitcoin, the economy would shift from a debt economy to a savings economy. The economy would also go back to focusing more on production than consumption because consumption and debt do not grow economies. This means that the current system, which is not under a bitcoin standard, is very sick, as described in “The Fiat standard.”
In my opinion, the bitcoin standard would mean that the stock market would go down. With solid money, people would actually have savings, which would change the way they invest. But that doesn’t mean there wouldn’t be an economy or economic growth. Again, it just means that people will use the savings more than they do now. They will rely on savings instead of debt.
Many current companies will go bankrupt, but that is capitalism. Some companies need to go bankrupt. Companies that are productive and add value will survive. This includes companies that are involved with Bitcoin. Bitcoin companies provide value and can pay dividends in Bitcoin.
curing bubbles
The Bitcoin standard would also mean that we would not have fiat credit bubbles. The current system of colossal asset bubbles and huge busts is mainly, if not exclusively, related to central banks such as the Federal Reserve. Asset bubbles are not just an abstract idea. Instead, bubbles cause a Herculean misallocation of resources in the real economy. Bitcoin solves this. Yes, this means house prices will go down, but they need to go down. Home sellers are not more important than home buyers.
Lastly, Bitcoin should eat inflation alive! Consumer prices will go down because they should go down over time. A more productive economy should drive prices down over time. Technological deflation is a good thing not to be feared. Falling consumer prices won’t stop me from drinking my morning coffee because I won’t delay shopping along the way.
For some things? Yes. But then again, technological deflation is apparently a good thing. And bad deflation is a product of the current fiat system.
None of this is to say that there would be no pain at all in the transition from the US dollar fiat standard to the Bitcoin standard. There would be some pain in the process. But, as a workout, it will pay off in the end. The elite of society will adopt Bitcoin because it will be okay. The future is the bitcoin standard.
This is a guest post by Jonathan Garner. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
