Bitcoin Forum

This paper examines the potentially destabilizing effects of emerging digital currencies on the international foreign currency exchange. Specifically, it examines “Bitcoin,” a decentralized, partially anonymous, and largely unregulated digital currency that has become particularly popular in the last few years. The paper argues that the International Monetary Fund, the institution responsible for coordinating the stability of foreign exchange rates, is ill-equipped to handle the widespread use of Bitcoins into the foreign exchange market. It highlights the inability of the Fund to intervene in the event of a speculative attack on a currency by Bitcoin users. The paper concludes by suggesting two interpretations of the Fund’s incorporating document, the Articles of Agreement, which would allow it to intervene in the event of such an attack.

The IMF’s relationship with the bitcoin economy is a most poignant one: the IMF knows that unless it acknowledges bitcoins, it cannot intervene during a speculative attack or some other destabilizing event. While the ethics/behavior of the IMF is beyond the scope of this post, we are well aware of their capacity for nefariousity (see: cyprus). If the need arose for regulation by the IMF, it would require cornering enough of the bitcoin market to make a difference. This, as you can guess, is a double edged sword because it would also give them the power to control the currency.

The IMF has no way of interfacing with bitcoin without completely undermining the decentralization of the bitcoin economy. It would appear that at one point or another this issue will come to a head, and when it does it won’t be pretty. At the moment bitcoin is quite vulnerable if there was a cooperative, concerted effort to undermine its value. Thankfully this appears not to be an immediate concern. But it will become one.

No, they can't achieve control that way.

1. It's not possible to accumulate a significant proportion of the current supply without pushing the price up commensurately. And as is pointed out in the OP, the legitimacy is also pushed up. Incentive to sell back to fiat is further lessened.
2. Not all supply currently exists, so this could never be a one-off, it would have to be a permanent reserve purchasing policy, as otherwise their previous position gets eroded by the newly mined supply.

Gigantic implications for Bitcoin's price and future if this paper leads to any IMF action.  

Fascinating read, thanks. I speculate that the chance of this author being noticed by IMF heavyweights is slim to none because of his place in the global financial pecking order. Whether that is good or bad (or true) I can't tell.

http://www.polisci.uci.edu/node/1308

Fascinating read, thanks. I speculate that the chance of this author being noticed by IMF heavyweights is slim to none because of his place in the global financial pecking order. Whether that is good or bad (or true) I can't tell.

http://www.polisci.uci.edu/node/1308

Ah very interesting.  Too bad, he's still in law school, but still, being the first to publish a paper on this particular topic, it sets a precedent, and perhaps it will get noticed and forwarded and looked at in higher circles, or maybe the IMF will use him as a consultant.  Given our current Bitcoin-as-buzzword environment, maybe some news outlets will also pick it up and it can get some mindshare that way as well.

Sorry, that law school thing is a couple of years old. Poster above says he's now at Chicago. Gulp!

 My observation was on the level of "the old guard tend to trust each other, not rookies". If it turns out that a powerful sponsor commissioned the report that would change everything, and if it turned out that his report happens to match what they were already thinking then perhaps an academic star is born.

We'll find out, one way or another.

you know what is messed up with the premise of this whole article is that just who are the worst speculative attackers of just about every currency in the world today?

why, central banksters!  by printing and suppressing interest rates, they are encouraging speculators (Wall St) to borrow (short) the USD and buy risk (stocks, real estate, bonds, commodities, etc).  

and just who do their actions hurt the most?  citizens, producers, and savers.

so what exactly is the IMF doing about that?

If they want to corner Litecoins too that would be great, and VaginaCoin and then the immense number  of new coins that will be produced once people realize that the banksters will buy them all.  :-*

I think they still do not fully appreciate how disruptive this could really be.

This ... BitCoin is not a single company, there is no "The Bitcoin Company" running the bitcoin servers, or even a single decentralised network. It is open source for creating monies ad infinitum, i.e. armageddon for anybody still harbouring illusions of monopoly power over monetary issuance.

The dollar is not the world’s first reserve currency and it almost certainly will not be the last. The same status has been achieved by an abundance of currencies over the last 2,500 years as their issuing nations gained and lost economic prominence. Accordingly, the fate of the global financial system is tied to the success or failure of individual nations and, as the chart below illustrates, the USD is approaching the average lifespan for this role.
Historical Reserve Currencies

The sentiment that the time has come for an alternative seems to be underlying the actions of financial decision makers internationally. The share of global reserves held in USD has fallen approximately 10% so far in the 21st century and calls for a replacement for the USD have been posed in recent years. China has repeatedly suggested removing the USD from reserve currency status, as has the International Monetary Fund.

One of the most popular alternatives discussed on the global stage is the IMF’s Special Drawing Rights (SDRs) – claims on a basket of currencies, the composition of which is determined by the IMF Executive Board. Given the propensity for intentional manipulation of important financial benchmarks and increasing contention caused by international monetary unions, the prospect of going further down path of consolidated power with the SDR is disconcerting. As would be expected, some countries are beginning to show visible angst towards the global fiat system in general and have begun repatriating large amounts of physical gold.

In a world of increasing global communication and trade, a nation-agnostic currency would solve many of the problems we’ve seen repeated throughout history and potentially ease the associated international tensions. An asset for which the value is determined solely by international demand, immune to influence from central planners, is a necessary step forward towards a free market.

Only recently have the technologies required to facilitate such an idea existed, so for the first time in history, the next shift in reserve currency could be to one not controlled by government(s) or banks. Bitcoin may not be the solution, but categorically speaking, there’s a strong argument that it’s a step in the right direction.

Things I learned today:

1. The last bitcoin will be mined in 2025...(pg. 3)
2. Bitcoins are computer files...(pg. 6)

I'm on page 8, can't wait to learn more! To be fair, I'm being a bit harsh on technicalities, it's good that someone is thinking about these issues.

(I bet that paper was funded by a VC)

stop with the "they don't realize, they don't understand" bullshit.

They do.

We have a battle on our hands.

I agree Doc. These bankers aren't morons. They know exactly what they are doing it's just that their motivations are counter to those of Bitcoiners. Having said that, if I were them I would be looking to add BTC to the IMF sooner rather than later at potentially much higher prices. Perhaps they already have some.

Insider information about explicit Bitcoin monetization by the IMF (or any sovereign state) would be the trade of the century.

We have seen many times in the past few years how key information routinely gets leaked out by officials and bureaucrats to privileged banking cronies.

Remember, Bitcoin is the ultimate insider trading vehicle, as it's entirely unregulated in that regard.  If you're a bankster with friends at the IMF and get some hint of impending action, nothing restrains you from telling all your friends and family after you've loaded up yourself.  There is no SEC coming after any of you, especially if you take extra precautions and buy via OTC channels.

So if someday you start seeing the price shooting up inexplicably, day after day, on no fundamental news or media coverage, remember this article.

If there's easy billions to be made by pushing certain ideas to alumni from your company who now work as heads of central banks and treasury departments...don't be surprised to see the investment banking universe put their weight behind that kind of trade.

No, they can't achieve control that way.

1. It's not possible to accumulate a significant proportion of the current supply without pushing the price up commensurately. And as is pointed out in the OP, the legitimacy is also pushed up. Incentive to sell back to fiat is further lessened.

wouldn't it be ironic if Bitcoin goes into one of those 1980 parabolic spikes instead?  not b/c of information asymmetry but b/c of true disruptive, revolutionary potential?

like evoorhees says, it's either going to be a zero or worth hundreds of thousands.  we're much closer to zero right now yet holding well over $100 which is an awesome signal.  to get to $100,000 sometime over the next 6 yrs we need to get going at some point along here.  i believe that is the right timeframe as Falkvinge has outlined; 10 yrs from time zero or 2009.

i think it will be a rocket shot initiated by the banking community getting in.

As we gleaned from the conference, the current price lull is temporary...in 6 months there will be another raft of positive news from all the projects that are have been started.  Many of which attempt to address Bitcoin's infrastructure problems.

Never in history have we seen a commodity going from being worthless, to having a realistic chance of becoming worldwide circulated as money, in an era of instant information flow.  Bitcoin has already proven to be unprecedented in terms of ambition and speed versus all other assets and charts that have ever existed.  It might be one of the few times when the word "new paradigm" is actually justified, except unlike TV, Internet, and other past authentic disruptions, the paradigm itself can be directly bought and sold and invested in!  Yet another unique trait.  Some have called it an economic singularity...for lack of a better word I thought Konrad Graf had a really good insight in calling the Bitcoin event a "hypermonetization".  If it succeeds, it'll write a new chapter in economics textbooks.

http://konradsgraf.com/blog1/2013/4/6/hyper-monetization-questioning-the-bitcoin-bubble-bubble.html

Insider information about explicit Bitcoin monetization by the IMF (or any sovereign state) would be the trade of the century.

We have seen many times in the past few years how key information routinely gets leaked out by officials and bureaucrats to privileged banking cronies.

Remember, Bitcoin is the ultimate insider trading vehicle, as it's entirely unregulated in that regard.  If you're a bankster with friends at the IMF and get some hint of impending action, nothing restrains you from telling all your friends and family after you've loaded up yourself.  There is no SEC coming after any of you, especially if you take extra precautions and buy via OTC channels.

So if someday you start seeing the price shooting up inexplicably, day after day, on no fundamental news or media coverage, remember this article.

If there's easy billions to be made by pushing certain ideas to alumni from your company who now work as heads of central banks and treasury departments...don't be surprised to see the investment banking universe put their weight behind that kind of trade.

You can't be serious. We will have some information because we'll see some significant improvements on the infrastructure. I don't believe tens of billions of dollars will flow into Gox to buy bitcoins, at least not in its current incarnation.

You can't be serious. We will have some information because we'll see some significant improvements on the infrastructure. I don't believe tens of billions of dollars will flow into Gox to buy bitcoins, at least not in its current incarnation.

They wouldn't just be sending money to Gox.  That would be the fastest way to raise the price, and they would have every incentive to try to hide the fact they were accumulating BTC.  They would use a bunch of different techniques, starting with the purchase of several million dollars worth of ASIC hardware.  Next they should hit up local bitcoins and buy as many coins there as possible, no worrying about losing 20% to fraud.  That action would affect the Gox price, as some people would be using Gox to hedge and otherwise enable the trades, but that strategy would drive up the price far more slowly than buying the coins directly on Gox.  They may even dump coins on Gox and buy them back OTC.

Next they should hit up local bitcoins and buy as many coins there as possible, no worrying about losing 20% to fraud.  That action would affect the Gox price, as some people would be using Gox to hedge and otherwise enable the trades, but that strategy would drive up the price far more slowly than buying the coins directly on Gox.  They may even dump coins on Gox and buy them back OTC.

I suspect that most active BTC sellers on LocalBitcoins act as a passthrough to the exchanges. They sell above spot at a price that allows them to rebuy on the exchange to replenish what they sell for cash.