2013-11-07 Zerohedge: Bitcoin Over $300 Could Become A Global Reserve Currency

[solex]

As Bitcoin Soars Over $300, A Question Arises: Could It Become A Global Reserve Currency?

http://www.zerohedge.com/news/2013-11-07/bitcoin-soars-over-300-question-arises-could-it-become-global-reserve-currency#comment-4131940

The question I have been waiting to see debated in the mainstream!

[Carlton Banks]

He's (Charles Hugh-Smith) presenting slightly too much of a chicken and egg argument, sadly, and it's all blinkered in looking at Bitcoin solely in terms of it's utility as a tool for international trade, casting any other valuable use out of his analysis.

He states "Since there is no real-world commodity backing the digital currency, its value must be based on scarcity and its ubiquity as money", which struggles to explain how Bitcoin initially went from $0.00 to $0.01. He goes on to state a series of unqualified estimates for the value of Bitcoin's monetary base as measured in Dollars, and seems to suggest a paradox whereby it can't attain such a value without being an accepted currency of international trade, and yet it can't become accepted for international trade without attaining such a value (he also assumes a static purchasing power for $1 trillion while the Federal Reserve continues to sequester that amount per year into CDO's that the markets won't touch) . Hugh-Smith then goes on to say that a further paradox would manifest as a result of it attaining his asserted goldilocks valuation, in that people would express doubt in the viability of the exchange rate, on the basis that what comes up, must or could come down.

I think he's comparing cryptocurrencies with the introduction of new asset classes that he's aware of from history, but there is only one useful comparison; with the popularisation of gold for international trade. And even then, the comparison is not entirely like with like; we all know that Bitcoin and gold share some properties and differ wildly in other aspects.

This is unexplored terrain, and Charles Hugh-Smith is trying to use the old maps when basic principles are the overwhelming decider.

[ArticMine]

Bitcoin would first have to pas the test of widespread use as a trading currency and a market cap of at least 1 trillion USD (2013 dollars) and more like 5-10 trillion USD. The exchange rate for one Bitcoin would have to in the 6 or 7 figure USD range. Then there is no reason why it cannot be a worldwide reserve currency or part of a basket of worldwide reserve currencies.

[Carlton Banks]

Bitcoin would first have to pas the test of widespread use as a trading currency and a market cap of at least 1 trillion USD (2013 dollars) and more like 5-10 trillion USD. The exchange rate for one Bitcoin would have to in the 6 or 7 figure USD range. Then there is no reason why it cannot be a worldwide reserve currency or part of a basket of worldwide reserve currencies.

Why?

When does a currency become a reserve? How much does reserve status matter? Is it not a means of private reserves for individuals right here and now?

[Cubic Earth]

Bitcoin would first have to pas the test of widespread use as a trading currency and a market cap of at least 1 trillion USD (2013 dollars) and more like 5-10 trillion USD. The exchange rate for one Bitcoin would have to in the 6 or 7 figure USD range. Then there is no reason why it cannot be a worldwide reserve currency or part of a basket of worldwide reserve currencies.

Why?

When does a currency become a reserve? How much does reserve status matter? Is it not a means of private reserves for individuals right here and now?

One of the ways I like to think about bitcoin is that we are all part of a private club.  Most of the people in this club are very smart, computer savvy, forward thinking, aligned with some concept of freedom etc. etc..  Bitcoin is way of keeping track of credit among members of the club, and even if it were all strictly coins-for-barter withing the club, the talents and skills of this group of people make me happy to have 'reserves' within this community.

[qwerty555]

Bitcoin would first have to pas the test of widespread use as a trading currency and a market cap of at least 1 trillion USD (2013 dollars) and more like 5-10 trillion USD. The exchange rate for one Bitcoin would have to in the 6 or 7 figure USD range. Then there is no reason why it cannot be a worldwide reserve currency or part of a basket of worldwide reserve currencies.

Why?

When does a currency become a reserve? How much does reserve status matter? Is it not a means of private reserves for individuals right here and now?

Quick opinion on that

When does a currency become a reserve?

I suggest that any currency and all currencies are a reserve to someone. If you do a lot of trade with Albania the LEK would probably be part (small) of your reserves but not widespread in other Countries.

The question  should be when does it become a widespread and major reserve internationally which is probably what you intended.


PS I LOVE Zerohedge which is an originator and  consolidator of financial and political articles and opinions with (frequently but not always) very astute analysis from industry insiders.

The answer is ....What is available in large quantities safe, less volatile, liquid and useful in your International trade as it is widely accepted.

Until recently that is  $ Euro and Yen being top.

This is/will soon change to include CNY and as I have posted elsewhere the Chinese are active and vocal on this.

http://www.zerohedge.com/news/2013-10-18/9-signs-china-making-move-against-us-dollar

How much does reserve status matter?

To bitcoin holders it matters mainly due to the increased price/value of their holdings should reserve currency status lead to substantial increased demand on a very limited supply. To Countries it may matter at some point (not yet or probably for many years) if it is safer and less volatile than what they are currently holding ( e.g a hyperinflation scenario for $ or Euro)
or worldwide loss of faith in all fiats. The next move to reserve currency status will definitely be the CNY and this will take some years ( maybe not that many at the current pace) Bitcoin or other cyber/crypto currency will probably not achieve that status in the next 10-20yrs and China will not want that unless they are "market leader" In any case by then some National Governments may well have created their own form of Crypto as the cost advantages of its use vs fiat and physical are well known.
But this is a side issue in the mid term.

Is it not a means of private reserves for individuals right here and now?

I completely agree for all except speculators and is more important to those holding currencies that are under pressure, subject to volatilty/devaluation or in Countries with capital controls. It is also a potential means for merchants to save money on transaction costs but I think we are working toward that goal and are not there yet.

[qwerty555]

Further to this above


This is/will soon change to include CNY and as I have posted elsewhere the Chinese are active and vocal on this.

I have just found that seven Asian Nations already have Chinese currency (renminbi)  as reserve currency.

http://www.bullionbullscanada.com/gold-commentary/26166-chinas-real-gold-reserves-at-4000-tonnes

http://www.chinadaily.com.cn/china/2012-10/24/content_15840495.htm

[Carlton Banks]

Another from my (mostly rhetorical) questions: if Bitcoin attained reserve status of some type, how long would that last?

What I'm really saying is, take a step back and think what the purpose of reserve currency actually is. How much longer could that role be valid?

[solex]

Another from my (mostly rhetorical) questions: if Bitcoin attained reserve status of some type, how long would that last?

What I'm really saying is, take a step back and think what the purpose of reserve currency actually is. How much longer could that role be valid?

The term "reserve currency" may actually fade with fiat itself, for the reason that a global currency is the next logical progression. A country like Bhutan needs dollars to pay for oil because the ngultrum is not something most people in the world values or trusts long-term. However, if Bhutan had a Bitcoin economy and could buy oil from a country with a Bitcoin economy then the need for a second currency disappears. This is is the role gold had for so long, when trade was face-to-face, but it is now re-invented for the 21st century where trade is done remotely.

[alexanderanon]

As Bitcoin Soars Over $300, A Question Arises: Could It Become A Global Reserve Currency?

http://www.zerohedge.com/news/2013-11-07/bitcoin-soars-over-300-question-arises-could-it-become-global-reserve-currency#comment-4131940

The question I have been waiting to see debated in the mainstream!

>mainstream
>zerohedge

pick one.

[qwerty555]

Another from my (mostly rhetorical) questions: if Bitcoin attained reserve status of some type, how long would that last?

What I'm really saying is, take a step back and think what the purpose of reserve currency actually is. How much longer could that role be valid?

The term "reserve currency" may actually fade with fiat itself, for the reason that a global currency is the next logical progression. A country like Bhutan needs dollars to pay for oil because the ngultrum is not something most people in the world values or trusts long-term. However, if Bhutan had a Bitcoin economy and could buy oil from a country with a Bitcoin economy then the need for a second currency disappears. This is is the role gold had for so long, when trade was face-to-face, but it is now re-invented for the 21st century where trade is done remotely.

The logical move to a global currency is spot on if the interests of the whole world are put first. Regretfully National interests of major players who attain  competitive, commercial, political and other advantages from being the issuer/controllers of a major reserve currency will probably and selfishly oppose and act to squash /delay any such move.

If it does not happen then anything that is the major reserve fiat has a "shelf life" of 30-40 years before it is replaced or changed in format. ANY currency at all has an AVERAGE life of 27 yrs


"Every 30-40 years the Reigning Monetary System Fails and has to be retooled"

http://georgewashington2.blogspot.com/2011/08/average-life-expectancy-for-fiat.html

According to a study of 775 fiat currencies by DollarDaze.org, there is no historical precedence for a fiat currency that has succeeded in holding its value. Twenty percent failed through hyperinflation, 21% were destroyed by war, 12% destroyed by independence, 24% were monetarily reformed, and 23% are still in circulation approaching one of the other outcomes.

The average life expectancy for a fiat currency is 27 years,

[HeliKopterBen]

For all intents and purposes, gold has been the de facto reserve currency for thousands of years, maybe just not officially.  However, all trends eventually reverse course, no matter how long that trend may be.