Bitcoin Series 3: Bitcoin would be a terrible national currency (and why that doesn’t matter).

One common debate between bitcoin evangelists and economists is the question about how well bitcoin could serve the role of a national currency and a unit of account for a country as a whole.  

The two main points that economists make are:

(a)    Bitcoin is too volatile at this point to be a day-to-day currency.    This is true right now (though this will mitigate over time).

(b)   Bitcoin as a national currency would be deflationary, take away monetary policy as a tool for economic management and herald the return of the gold standard 2.0.     Or, to take a more modern example, is the situation that the southern European countries have placed themselves in by tying themselves to the euro, a currency that they don’t have effective control over.

On this topic, the economists are right and the bitcoin enthusiasts are wasting their time arguing the point.    They should just concede that bitcoin would not be a good national currency and move on to any one of 20 other areas where bitcoin is unambiguously useful.

Besides the fact that the economists are correct, there is no chance that any serious national government will replace their central banking powers with bitcoin any time soon.    At best, this could be an option a few years from now for a country in complete distress (aka Zimbabwe during its recent hyperinflation phase) that needs to latch themselves to an outside metric (like Zimbabwe did with the dollar), but it is not relevant for any credible central bank (US, Europe, etc).

So, team bitcoin, in my humble opinion, needs to stop having this battle and practice saying:

“You are right, bitcoin would be deflationary if it were a national currency or the main unit of account for any particular country.   Fortunately it is not a national currency in any country today so none of these issues apply now or in the foreseeable future.   Now, can you please explain to me why in the current financial system in the year 2013 an international wire transfer (a few thousand bytes of data) takes 3 days to clear when I can transfer a video (hundreds of megabytes of data) in a few minutes?”

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Posted on December 28, 2013 and filed under Bitcoin.