Reserve Bank of #India Looks for Alt Reserve

[Benson Samuel]

The Reserve Bank of India is looking for emerging market currencies as alternative reserve currencies to the Dollar.

#Bitcoin is the answer.

http://goo.gl/8L1pc

[vokain]

The governor pointed out that one alternative was to have a menu of reserve currencies. "But this cannot happen by fiat. To be a serious contender as an alternative, a currency has to fulfill some exacting criteria. It has to be fully convertible and its exchange rate should be determined by market fundamentals; It should acquire a significant share in world trade; The currency issuing country should have liquid, open and large financial markets and also the policy credibility to inspire the confidence of potential investors. In short, the 'exorbitant privilege' of a reserve currency comes with an 'exorbitant responsibility'," he said.

Sounds about right

[Richy_T]

Yup. Dollar is on cruise control right now. Just wait until the inertia really starts to falter.

[vokain]

Relevant article:
ABOUT THE BENJAMINS: Why the share of $100 bills in circulation has been going up for over 40 years

So what the heck is going on here? Inflation may have something to do with it—there just weren’t as many things to buy in 1970 that might require one to slap down a $100 bill—but that still wouldn’t explain why their proportion today has nothing to do with what people see in their wallets.

The short answer is that a lot of money is spending a lot of time outside the United States.

The cognoscenti look at the share of $100 bills as something of a proxy for foreign demand for US currency. An overwhelming majority of the $100 bills come from the Federal Reserve Cash Office in New York City, which handles the bulk of foreign shipments of US currency. A typical shipment is a pallet containing 640,000 such bills, or $64 million, according to a recent Fed paper.

Somewhat surprisingly, it’s unclear exactly how much American money is floating around outside the US. Estimates run the gamut. In the 1990s, one high-profile estimate pegged the number at as much as 70%. But more recent estimates hover around 25%-30%.

And while there are plenty of reasons folks outside the US might want to hold dollars, the thinking is that most people are not using these $100 bills to buy milk and bananas. No, most economists seem to believe $100 bills are most often used as stores of value—almost something like mini-Treasury bills that don’t pay any interest. This is especially so in developing countries, where problems with unstable currencies and inflation often mean the purchasing power of local currency gradually—or not so gradually—erodes over time.

So it is a ponzi, unlike anything seen before.

[molecular]

The governor pointed out that one alternative was to have a menu of reserve currencies. "But this cannot happen by fiat. To be a serious contender as an alternative, a currency has to fulfill some exacting criteria. It has to be fully convertible and its exchange rate should be determined by market fundamentals; It should acquire a significant share in world trade; The currency issuing country should have liquid, open and large financial markets and also the policy credibility to inspire the confidence of potential investors. In short, the 'exorbitant privilege' of a reserve currency comes with an 'exorbitant responsibility'," he said.

Sounds about right

Except a good part of the criteria are not currently being fulfilled by bitcoin:

• fully convertible: don't know, what does that mean, exactly?
• exchange rate determined by market: CHECK
• there is a issuing country: FAIL
• should acquire a significant share of world trade: FAIL
• should have liquid financial market: MAYBE
• should have open financial market: CHECK
• should have large financial market: FAIL
• policy credibility: CHECK (maybe even good enough to make lack of issuing country not an issue?)

[thoughtfan]

The Reserve Bank of India is looking for emerging market currencies as alternative reserve currencies to the Dollar.

#Bitcoin is the answer.

Bitcoin most certainly has the potential to be but we're a long way from that yet.  All it needs is time and gradual adoption and adaption to developing circumstances without being attacked or otherwise destroyed by the powers that be.

I had not realised that part of the reason the massive QE going on is not resulting in a significant devaluation of the dollar is that other countries are buying it up as reserve.  If some countries are going to be disposing of some, to an extent it doesn't matter what they replace it with because the resultant flooding of dollars will surely be good for the BTC/USD rate - thus making Bitcoin more attractive?  I'm no economist so I may be missing something essential here.

[thoughtfan]

...it is a ponzi, unlike anything seen before.

Oh no, not the 'p' word again.  I can see where you're coming from but please let's not go there!  It's such an emotive term for which people have substantially differing ideas of what the essential characteristics of a ponzi scheme are.  Isn't there another way to convey the problem with the aspect of what's going on you see as problematic?

Sorry if I'm just being over-sensitive to it!

[deadweasel]

No, your not over-sensitive.  It's just another version of 'conspiracy theory'.

[Crypt_Current]

The governor pointed out that one alternative was to have a menu of reserve currencies. "But this cannot happen by fiat. To be a serious contender as an alternative, a currency has to fulfill some exacting criteria. It has to be fully convertible and its exchange rate should be determined by market fundamentals; It should acquire a significant share in world trade; The currency issuing country should have liquid, open and large financial markets and also the policy credibility to inspire the confidence of potential investors. In short, the 'exorbitant privilege' of a reserve currency comes with an 'exorbitant responsibility'," he said.

Sounds about right

Except a good part of the criteria are not currently being fulfilled by bitcoin:

• fully convertible: don't know, what does that mean, exactly?
• exchange rate determined by market: CHECK
• there is a issuing country: FAIL
• should acquire a significant share of world trade: FAIL
• should have liquid financial market: MAYBE
• should have open financial market: CHECK
• should have large financial market: FAIL
• policy credibility: CHECK (maybe even good enough to make lack of issuing country not an issue?)

All the fails that matter can be resolved with persistence and dedication and will necessarily take time to manifest and mature.

[J-Norm]

There is not enough capitalization for bitcoin to be used as a reserve currency now.

[molecular]

There is not enough capitalization for bitcoin to be used as a reserve currency now.

That's a chicken and egg problem. Once the central banks of the world started using it as a reserve currency, it'd be well-capitalized quickly

[J-Norm]

That's a chicken and egg problem. Once the central banks of the world started using it as a reserve currency, it'd be well-capitalized quickly

A nation cannot capitalize its own reserve, at least I don't see how it can. It needs to already have a global demand.

I think the major capitalization will happen when polititians learn how easy it is to hide bribes and kickbacks with bitcoin. They will also make sure it stays legal.

[benjamindees]

The solution is to find more than one country willing to trade in Bitcoins.  Then they can capitalize each other, and others will join.

[Benson Samuel]

I do beleive that Bitcoin is the answer, but needs more visibility.

I dont think that the Indian government will go the Bitcoin way as yet.

It is interesting however, that most of what they are looking for in a new reserve currency is already present in Bitcoin.

Maybe they are already looking at it .

[johnyj]

That's a chicken and egg problem. Once the central banks of the world started using it as a reserve currency, it'd be well-capitalized quickly

A nation cannot capitalize its own reserve, at least I don't see how it can. It needs to already have a global demand.

I think the major capitalization will happen when polititians learn how easy it is to hide bribes and kickbacks with bitcoin. They will also make sure it stays legal.

Good point, but I'm quite sure those polititians don't even know how to install a client 

[molecular]

That's a chicken and egg problem. Once the central banks of the world started using it as a reserve currency, it'd be well-capitalized quickly

A nation cannot capitalize its own reserve, at least I don't see how it can. It needs to already have a global demand.

I think the major capitalization will happen when polititians learn how easy it is to hide bribes and kickbacks with bitcoin. They will also make sure it stays legal.

Good point, but I'm quite sure those polititians don't even know how to install a client 

Politicians usually have people doing the real work for them if required.

[rchapoteau]

I think Bitcoin's which require a lot of technology to use, is not a good fit for a country like India. 

[Spaceman_Spiff]

Maybe they are already looking at it .

I think you are being a bit optimistic here  .  Bitcoin is an experiment, central banks want certainty.
Who wants to be the guy who brought up the idea to buy all these 'bitcoins' as a reserve, if bitcoin should fail?
If bitcoin grows and matures over the next couple of years, hopefully some people will be willing to stick out their neck. 
Right now, I think it is very unlikely...

[rchapoteau]

The price probably fluctuates a bit too much for any real consideration.   Also too new.  Maybe in 10 years if it is still around and stable it will be considered more.

[Richy_T]

I think Bitcoin's which require a lot of technology to use, is not a good fit for a country like India. 

I think you have a somewhat outdated idea of India. Also, this would be for the government to use, not the general populace, I would assume.