Currency circulation. Can someone help me?

[lophie]

Hello awesome guys. Lets discuss currency circulation. Which I have no idea of.

So I have been looking online about how currencies circulate but never found a proper article about it. Can anybody point me to the right direction. You see I want to compare bitcoin to other currencies and understand how Bitcoin would be able reach a "relatively" stable price, and how an economy could be formed around it.

Bitcoin opened my eyes to a lot of things and really got me interested in aspects of our lives I never noticed. So lets discuss this. Who is interested? or care to drop some info for us poor souls.

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[Lethn]

That's a tough one, because Bitcoin is so new and pretty anonymous it's going to be pretty difficult to tell how it will circulate, the only thing I can do is point you in the direction of Gold/Silver because they were originally deflationary currencies similar to Bitcoin, you may want to try some different terms to circulation.

http://www.nbcnews.com/id/16328073/#.USCjCTkU-Uk

http://www.answerbag.com/q_view/2224915

I think this is fairly accurate, searching for this type of thing is just going to be a matter of patience and trying out different words short version of it all I think is, central banks print money, banks receive it and lend it out to other businesses and people, with Bitcoin miners get it and then spend it at places then it just gets traded around constantly, with gold/silver, the miners dig it out of the ground and then sell it off and of course that gets traded amongst everyone as well.

Actually if we look at history with stuff like the Roman Empire and the Persian Empire etc. we'll probably find something on that.

http://histoiremesure.revues.org/886

There we go, look for stuff like this, Byzantine empire as well would be a good place to look.

[Puppet]

Its important to distinguish two functions of bitcoin; as payment method and a currency.
As a payment method, I think its positively brilliant and fits requirements thats currently unserved by any other system Im aware off, allowing electronic peer to peer cash payments, pretty much anonymously, irreversible, and with next to no transaction costs.  Its clear there is a demand for this, and paypal/visa etc can not, or at least do not, offer this.

As a currency, bitcoin is IMO far less of a good idea. It essentially works like an electronic alternative to gold, a limited supply commodity. Its much touted 21 million coin hard limit means it can not be created based on new debt (ie trade), and therefore, as a currency it can not adapt to changing needs of a growing economy. It also means its value would never stabilize unless the economy would stop growing as well.  It will face the same problems gold did in the middle ages, there just wasnt enough of it to act as a facilitator of trade, and that IMO, is the primary function of any currency: helping trade.  This is were bitcoin utterly fails and why IMO it cant ever replace fiat currency as a standard currency. It might still work as a store of wealth though, much like gold today.

Maybe ripple will manage to combine the best of both worlds, allowing p2p electronic "cash" payments like bitcoin, while also allowing credit to be issued just like fiat, but Ive not read enough about ripple to judge.

[lophie]

Thank you for the help this will be a good read and a good place to start. What got me thinking in this direction is the comparison to Fiat where the notes eventually find their ways back to the issuer for recirculation (or destruction is worn out).

So basically for the Roman Empire the far away coins lost a great deal of their value because they are away from the issuer (Which made a value claim harder), but they were around and used as play chips and such. As you get closer to the borders of the Empire the coins are more and more used as a medium of exchange.

If we consider this situation I think the crucial and most important areas of the Bitcoin as a currency is where Bitcoins are accept for exchange or physical goods. Bitcoin can easily be a success online for digital goods and services but what about physical ones (At a large scale).

If we consider the similar nature of Bitcoin to gold, and how we cannot get rid of fiat. Bitcoin success is bound to Bitcoins being a backend for another medium of exchange.

Hey I am just an idiot rambling here. But it is an interesting subject so lets talk about it a bit 

[CurbsideProphet]

Its important to distinguish two functions of bitcoin; as payment method and a currency.
As a payment method, I think its positively brilliant and fits requirements thats currently unserved by any other system Im aware off, allowing electronic peer to peer cash payments, pretty much anonymously, irreversible, and with next to no transaction costs.  Its clear there is a demand for this, and paypal/visa etc can not, or at least do not, offer this.

As a currency, bitcoin is IMO far less of a good idea. It essentially works like an electronic alternative to gold, a limited supply commodity. Its much touted 21 million coin hard limit means it can not be created based on new debt (ie trade), and therefore, as a currency it can not adapt to changing needs of a growing economy. It also means its value would never stabilize unless the economy would stop growing as well.  It will face the same problems gold did in the middle ages, there just wasnt enough of it to act as a facilitator of trade, and that IMO, is the primary function of any currency: helping trade.  This is were bitcoin utterly fails and why IMO it cant ever replace fiat currency as a standard currency. It might still work as a store of wealth though, much like gold today.

Maybe ripple will manage to combine the best of both worlds, allowing p2p electronic "cash" payments like bitcoin, while also allowing credit to be issued just like fiat, but Ive not read enough about ripple to judge.

You're not taking into account the ease of divisibility with Bitcoin.  That's a pretty big difference from gold in terms of being used as a currency.  You're correct, there is a hard limit, however, that limit can be expanded simply by dividing Bitcoin, which can be done to 8 decimal places.  That leaves a tremendous amount of room for expansion.

[Puppet]

Its important to distinguish two functions of bitcoin; as payment method and a currency.
As a payment method, I think its positively brilliant and fits requirements thats currently unserved by any other system Im aware off, allowing electronic peer to peer cash payments, pretty much anonymously, irreversible, and with next to no transaction costs.  Its clear there is a demand for this, and paypal/visa etc can not, or at least do not, offer this.

As a currency, bitcoin is IMO far less of a good idea. It essentially works like an electronic alternative to gold, a limited supply commodity. Its much touted 21 million coin hard limit means it can not be created based on new debt (ie trade), and therefore, as a currency it can not adapt to changing needs of a growing economy. It also means its value would never stabilize unless the economy would stop growing as well.  It will face the same problems gold did in the middle ages, there just wasnt enough of it to act as a facilitator of trade, and that IMO, is the primary function of any currency: helping trade.  This is were bitcoin utterly fails and why IMO it cant ever replace fiat currency as a standard currency. It might still work as a store of wealth though, much like gold today.

Maybe ripple will manage to combine the best of both worlds, allowing p2p electronic "cash" payments like bitcoin, while also allowing credit to be issued just like fiat, but Ive not read enough about ripple to judge.

You're not taking into account the ease of divisibility with Bitcoin.  That's a pretty big difference from gold in terms of being used as a currency.  You're correct, there is a hard limit, however, that limit can be expanded simply by dividing Bitcoin, which can be done to 8 decimal places.  That leaves a tremendous amount of room for expansion.

Gold is just as divisible, thats not the issue. The issue is creating credit money, expanding the monetary supply when there is an increased demand for credit. Thats something you can do with fiat, and which is impossible with either bitcoin or gold. Dividing the currency is no alternative, because you still need the full amount of money that represents the full value of the trade.  A bitcoin based economy would be permanently stuck in a credit crunch. Just think who would lend you bitcoins over 20 years to buy a house or build a factory, when everyone expects bitcoins to keep increasing in value? It just cant work.

[Beepbop]

Governments don't just print money - unless they want to cause runaway inflation and their money becoming worthless. Central banks control the money supply through loans (they loan money to banks and other financial institutions) and government bonds (they borrow money from those who buy the bonds). Central banks may choose to devalue the currency by making more of it, or to increase its value by destroying money that they already hold (physically destroying money without printing replacements or by deleting money from their own accounts).

Realize that today, most of the money doesn't exist as physical coins or bank notes. They exist as numbers in an account or on some kind of instrument that can be converted to physical cash if one wants to. And as long as they keep checks and balances on that, that's fine. Moving physical cash around is expensive both in security, transportation costs, and physical wear on the money.

Gold is just as divisible, thats not the issue.

It becomes impractical pretty quickly though. You need to constantly determine the carat of a lump of gold and have super-accurate weights at all points of sale. Even many of the supposedly professional gold buyers are known to be incompetent at their estimation of the value of the gold that people trade in.

[solex]

So basically for the Roman Empire the far away coins lost a great deal of their value because they are away from the issuer (Which made a value claim harder), but they were around and used as play chips and such. As you get closer to the borders of the Empire the coins are more and more used as a medium of exchange.

Iophie, you mention Rome, which is insightful, because the fate of the Roman Empire was driven by its currency.

If you have the time I recommend this fascinating transcript of a lecture on how inflation wrecked the Roman economy and its political and military systems.
http://www.marketoracle.co.uk/Article12831.html

The parallels with the economic problems in Western countries today are compelling.

[lophie]

So basically for the Roman Empire the far away coins lost a great deal of their value because they are away from the issuer (Which made a value claim harder), but they were around and used as play chips and such. As you get closer to the borders of the Empire the coins are more and more used as a medium of exchange.

Iophie, you mention Rome, which is insightful, because the fate of the Roman Empire was driven by its currency.

If you have the time I recommend this fascinating transcript of a lecture on how inflation wrecked the Roman economy and its political and military systems.
http://www.marketoracle.co.uk/Article12831.html

The parallels with the economic problems in Western countries today are compelling.

Grabbed the audio version. Laughed so hard when the Roman gov. Won't take taxes in their own issued currency. Devaluing it on the spot! Thank you. Very informative indeed.

[Doctor Mushies]

The ability of a government to derive value from their fiat is essential for their continued existence, take that away and what do they have? What do they become? 

[jubalix]

Hello awesome guys. Lets discuss currency circulation. Which I have no idea of.

So I have been looking online about how currencies circulate but never found a proper article about it. Can anybody point me to the right direction. You see I want to compare bitcoin to other currencies and understand how Bitcoin would be able reach a "relatively" stable price, and how an economy could be formed around it.

Bitcoin opened my eyes to a lot of things and really got me interested in aspects of our lives I never noticed. So lets discuss this. Who is interested? or care to drop some info for us poor souls.

you have to get a good handle on
Fiat currency
Fractional reserve banking (bassel accords)
the implications of the velocity of money
how the stock/bond markets interact to "create" money
money as a representation of value


hint, no one ever made currency money on the stock market, they just swaped with someone esle a certificate for a different amount of preexisting money

this pre existing money was issued by and approved deposit taking intuition (ADI/bank) or cash


aslo any money you make out side of cash, comes from some one up the chain getting a loan with the bank
and for every loan a back executes it must execute more to fund that loan.

bitcoin attacks the ability of the ADI  to be the only issuer of currency or that their issue would be accepted in favour of a better/more reliable currency that will hold its value and be cheaper to use/transact also immune to tax and court orders

This will cripple governments....thus at some point they may have to address it if they want to exist.