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October 31, 2015, 09:28:48 PM |
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Is a "blockchain standard" coming to major currencies?
This is based on the recent news that IBM is exploring with the Fed and other central banks how to tie currencies to a blockchain, plus the recent article in The Economist praising the trust-building value of blockchains.
To me, it makes perfect sense. If currencies are suffering a post-crisis debt overhang with no real economic growth in sight, central banks will have to do something soon to get growth and inflation going again. The most painless path would be to peg currency against limited-quantity assets like gold, Bitcoin, or a new blockchain designated as the global monetary reserve.
Peg it at a high enough price, and the central banks would have financial stability while pursuing aggressive stimulus, and finally get the world out of this funk. Current holders of fiat debt and money would eventually lose most of their asset values, but that might just be too bad, from the authorities' point of view.
If that is done with cryptocurrency, I am guessing the following:
- There would be a single, global blockchain for all the world's currencies to peg against -- this is analogous to the gold standard, where eventually all countries jumped on gold and not silver.
- The blockchain would function exactly like Bitcoin (if it's not Bitcoin itself.) This would be the only way to build trust among savers -- a totally public ledger with a guaranteed limited supply of money and proven trustworthiness.
- Somehow, the world would have to trust the blockchain as the basis of money. This might take time, but it would mean the authorities would keep Bitcoin's value stable, if not growing, for the foreseeable future. (BTW, if today's price doesn't go up, the Fed could buy up the entire supply of bitcoins with $6B (21 million X $300) which is loose change on the Fed's balance sheet -- so Bitcoin price manipulation by the Fed is feasible.)
- If the authorities could buy up enough Bitcoin, they would use Bitcoin (after all, they want their currencies to be backed by something that people want, and a new blockchain has no proven track record in this regard.) If not, they would use a new blockchain where they mine more than half the coins before going public.
- It would be a brave new world of high inflation and high growth. Young people and those with skills would do OK, since there would be plenty of jobs. Stocks would do well. Retirees who have invested mostly in cash and bonds would be paying the price.
- The move would not be announced until the last minute, and the move would be fast and irreversible.
- The entire process would amount to a cancellation of past debt and starting from scratch, from the point of view of national currencies.
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