REGULATING DIGITAL CURRENCIES : BRINGING BITCOIN WITHIN THE REACH OF THE IMF

[knight22]

http://pix.cs.olemiss.edu/csci103/bitcoinMarketplace.pdf

Here are the best part:

There are, however, challenges that must be overcome. The most obvious obstacle to regulating the impact of Bitcoins on the foreign currency exchange via the IMF is one
of enforcement. Article VII of the Articles of Agreement allows the IMF to replenish its holding of a member’s nation currency. It also allows the IMF to restrict the flow of a currency it deems to be scarce and to apportion its allocation accordingly. Both are vital tools for countering a speculative attack. The first allows the IMF to overcome any currency shortages, ensuring that it has a sufficient amount of currency to lend in an effort to offset a speculative attack. The second gives the IMF the flexibility it needs to respond in the event of an emergency shortage, and allows the member nation whose currency is in short supply to limit the domestic exchange of its scarce currency.

There are , however, two ways to incorporate Bitcoin into the IMF’s regime. The first option is to grant the IMF indirect control over Bitcoin by expanding the interpretation of an already existing provision of the IMF. This approach requires the least amount of change and leaves the overall IMF framework mostly intact. The second
option is to grant the IMF more direct control over Bitcoin by granting it and other digital currencies quasi membership status. This more radical approach would require and amendment of the Articles of Agreement and would fundamentally alter the existing framework’s conception of a non-state actor’s role in the IMF .

tl;dr

The IMF has no way to control the supply of bitcoin in case of a speculative attack (described in the document) against another currency so their only and best solution is to.... get a reserve of bitcoin! If that ever happen, get ready for the bank's bitcoin gold rush!

Who is willing to do a speculative attack with me using bitcoin against another currency?  

[johnny211]

Somebody get Soros on the phone now...

[knight22]

Soros?

[LMGTFY]

Soros?

George Soros attained notoriety (at least in Britain) in the early 90s when Britain left the EU's "exchange-rate mechanism" (Soros had shorted GBP worth USD 10billion): http://en.wikipedia.org/wiki/George_soros#Currency_speculation

[odolvlobo]

Finding a way to regulate Bitcoin is critical in light of its potential destabilizing effects on the IMF's ability to manipulate foreign currency exchange.

FTFY

As such, the IMF could require member nations to pay part of their subscription quota with Bitcoins.

That would be fantastic.

[Warren]

Excellent read, thanks for posting the link!

As their value increases, so does the expense that the IMF has to incur in order to obtain them. Because having a supply of Bitcoins is necessary to effectively counter a speculative attack, the sooner the IMF can acquire a supply of Bitcoins, the cheaper counteracting such an attack will be.

I agree, the IMF better start buying now when they are still cheap!  

B. Direct Control: Granting Digital Currencies Quasi-Membership to the IMF

Alternatively, the IMF could collect Bitcoins directly from Bitcoin users rather than using member-nations as intermediaries...
....

Section 3 would allow the IMF to recognize Bitcoin as an “IMF-official” digital currency once the IMF has obtained a certain amount of Bitcoins from Bitcoin users.

The trade-offs would be mutually beneficial. Bitcoin users would sell Bitcoins to the IMF for an equivalent value of other currencies. In exchange, Bitcoin users would benefit from the increased legitimacy that official IMF recognition would bring.

Sounds good to me.

By doing business with an established international institution such as the IMF, Bitcoin users demonstrate that Bitcoin is committed to being a real player in global finance, not just a fringe currency.

It's the opposite actually. It's the IMF that now recognises that Bitcoin can no longer be ignored and decides to surrender now instead of later when it will be more expensive.  

Direct interaction with the IMF would, in turn, bolster confidence in Bitcoin as a globally accessible digital currency and would increase the potential market for Bitcoins.

Agreed.

It is worth noting that participating with the IMF in this manner would not violate Bitcoin’s anti-establishment ethos: selling Bitcoins to the IMF would be a simple transaction with none of the IMF’s regulatory strings attached.

Agreed. The IMF would be just like any other market participant.

The IMF, on the other hand, would benefit from having the Bitcoin reserves it needs to counter a speculative attack without requiring member-nations to take any domestic action.

Ok.

This solution is not, however, without its drawbacks.

I can't see any for me personally yet.  

Collecting Bitcoins via a quasi- membership scheme creates a collective action problem. Because Bitcoin operates through a decentralized network of users, aggregating the necessary amount of Bitcoins would be difficult.

Not really, you just have to buy them at the market price or mine them just like everyone else. The sooner you start the cheaper it will be!  

There is no centralized institution for the IMF to go to, and no easy way for the IMF to contact Bitcoin users directly. The IMF would have to enter online Bitexchanges like any other prospective Bitcoin user.

Correct.

Welcome to the truly free open market where you don't hold any special privileges over the common man. I know you are not used to that...  

Even if the IMF were able to transact with Bitcoin users directly, the recognition-in-exchange-for-trading scheme creates a tragedy of the commons: all Bitcoin users benefit from the increased legitimacy of IMF recognition, but no one individual user has an incentive to transact with the IMF.

It's not really a "tragedy of the commons". It just means that it will be more expensive for the IMF to achieve its goals.

In fact, Bitcoin users might very well have incentive not to transact with the IMF right away.

I am sure you will find people selling, but yeah most intelligent investors will probably prefer to hold.

Recall that Bitcoin’s mining software is programmed to cap the generation of Bitcoins by approximately 2025. Once the availability of Bitcoins becomes finite, we can expect the value of Bitcoins to increase.

You're damn right we can.  

Thus, Bitcoin users have a short-term incentive to hold on to their Bitcoins rather than trade them. Since the proposed system relies on the completely voluntary participation of Bitcoin users, the incentive to hold on to Bitcoins creates a serious problem.

No, it's not a "problem". It is the benefit of a non-inflationary currency. Unfortunately for the IMF it just means it will be more expensive to do what they want.

Welcome to the truly free market!  

[practicaldreamer]

Will take me maybe 24 hours to get my head around this (maybe longer as its Saturday night  ) - but an interesting article, thanks.

Bloody hell - just when I think I've got BTC covered something else comes along to get my head spinning 

[knightcoin]

Nice article,
Thanks OP.

ps-> today I will be mainly thinking about exchange (bid-ask, order book and network broadcast/lag)

[minor-transgression]

Professor Steve Keen's views on Bancor as an International Reserve Currency are here (video unfortunately)

http://www.debtdeflation.com/blogs/2013/11/30/the-international-financial-order/

I could not possibly comment on whether bitcoin has the characteristics necessary to
behave as a reserve currency, or store of wealth, nor to comment on the behaviour
of gold, or the US Dollar.

[knightcoin]

I don't know either .... but

for now I'm thinking about:
//Array = Homogenous data structures and efficiency of an algorithm is represented in Big-O notation;

[DeeSome]

Would be good news apart from the fact that the paper is written by Nicholas A. Plassaras  who is nothing to do with the IMF, he's not even a European citizen.

[Catmoonglow]

LOL. How exactly do they plan to "intervene"? Hasn't every "reputable" economist already dismissed bitcoin anyway? If so then what exactly are they so scared of?

[BitDreams]

Here are some goals of the IMF: http://www.imf.org/external/np/exr/facts/mdg.htm

I hope that smart people see that the goals of the IMF can be attained (perhaps ONLY) through Bitcoin protocol.


(1) To leave no one behind and complete the MDGs, moving from reducing to ending extreme poverty in all its forms;


(2) To put sustainable development at the core by integrating the social, economic, and environmental dimensions of sustainability;


(3) To foster a profound economic transformation that will generate a quantum leap forward in economic opportunities, job creation, and inclusive growth;


(4) To build peaceful, effective, open, and accountable institutions for all but also recognize that peace and good governance are core elements of the development process; and


(5) To forge a new global partnership, in which the international community goes beyond an aid agenda: including reductions in corruption, illicit financial flows, and tax evasion; fighting climate change; championing free and fair trade, technology innovation, transfer and diffusion; and promoting financial stability.

I put up a blog post http://ponziunit.blogspot.com/2014/05/bitcoin-international-monetary-fund.html

My comments:

On the surface, these goals appear sensible and just and I find little to critique, however reaching those goals with current process is the stuff that conflict and war are made of.

I believe the Bitcoin protocol is the enabler bringing sensible and just regulation to the surface -  individuals being 'the surface'.

We, the surface, accept that there must be rules of commerce for without mutual agreement there is no commerce. Carve those rules into the blockchain and may the best blockchain win, or evolve as I see it.

Society will gradually adopt blockchains with rules where the surface best thrives.

 "Mom said, 'catch more flys with honey"

[i dig bitcoins]

IMF = Idebtidness Mediating Fraternity 

[delphic]

If Bitcoin achieves it's full potential (which would not require the blessing or participation of the IMF), Bitcoin could render the IMF irrelevant.

To the extent that the Bitcoin 'community' (i.e. any and everyone who uses Bitcoin) shares common values and objectives with the IMF, Bitcoin can go down a parallel path to the IMF. If things happen that coincide with what the IMF wants, it will be because of a grass-roots commonality of purpose, not because of the objectives of those who control fiat currencies, or of the IMF (trying to) control Bitcoin.

More practically, Bitcoin (users) do not need the blessing of, involvement of, or to engage with, the IMF, although the IMF is free to participate in Bitcoin as it so chooses.

The decentralised nature of Bitcoin builds-in the irrelevance of traditional, controlled monetary systems from the very beginning. It's in Bitcoin's DNA.

Bitcoin democratises money. It is free from the direction and control of any Government, or of any other body, other than the net behaviour of Bitcoin users in total.

By doing business with an established international institution such as the IMF, Bitcoin users demonstrate that Bitcoin is committed to being a real player in global finance, not just a fringe currency.

Ah, right. Bitcoin can commit to being a real player. What does Bitcoin think about that? Does Bitcoin want to be committed? I know, I'll ask her. Does anyone have Bitcoin's phone number?

IMF (or rather, the author of the paper), take note: Bitcoin is NOT a person, neither an individual nor corporate. Bitcoin is not an entity, sentient or otherwise, that is capable of demonstrating, or not demonstrating, 'commitment'.

Thus, Bitcoin users have a short-term incentive to hold on to their Bitcoins rather than trade them. Since the proposed system relies on the completely voluntary participation of Bitcoin users, the incentive to hold on to Bitcoins creates a serious problem.

Oh dear. Holding onto Bitcoins. People hoarding them, instead of central banks hoarding currency. I remember the days, before we were urged to fund our lives through debt, such activity was called 'savings'. Savings became a bad idea when we saw how fractional-reserve banking destroyed savings through a tax called 'inflation'. Then along came Bitcoin, allowing people to free themselves from the clutches of Central Banks.

Yes, people holding on to Bitcoins will cause serious problems. For Central bankers.

There are , however, two ways to incorporate Bitcoin into the IMF’s regime. The first option is to grant the IMF indirect control over Bitcoin by expanding the interpretation of an already existing provision of the IMF. This approach requires the least amount of change and leaves the overall IMF framework mostly intact.

The second option is to grant the IMF more direct control over Bitcoin by granting it and other digital currencies quasi membership status. This more radical approach would require and amendment of the Articles of Agreement and would fundamentally alter the existing framework’s conception of a non-state actor’s role in the IMF .

The author of the paper just doesn't get it, what is so fundamentally different about Bitcoin. The IMF can't control it.

Even if they could, that fact would then destroy Bitcoin.

Here are some goals of the IMF: http://www.imf.org/external/np/exr/facts/mdg.htm

I wonder if the IMF has ever read that?

[BitDreams]

So much WIN in this thread. I hereby nominate the posters in this thread to form the next IMF. Voting to be held through the block chain. 

[Ron~Popeil]

I don't want the slimeballs anywhere near any crypto currency. Any temporary increase in value would be lost to currency manipulation and the always present desire to find ways to tax anything that breathes.

Maybe we should start an international bitcoin fund and take "indirect control" of the corrupt fiat system.

[baobab]

So I'm guessing nobody read the article. The extent to which the author doesn't get it is hilarious.

Bitcoin also uses a widely-published “peer-to-peer distributed timestamp server” to verify that the digital coins have not been “double spent”—in other words, counterfeited. A timestamp records the exact time that a Bitcoin is created or a transaction from one user to another occurs. These timestamps are aggregated into a master list of transactions involving a particular Bitcoin file—similar to a chain of title—called a “block chain.” The block chains of each Bitcoin are available to all users on a network, and are updated with every subsequent transaction. Because block chains involve an enormous amount of data regarding previous transactions, the timestamp servers make it incredibly difficult to forge a block chain. In that sense, the timestamp server helps guard against Bitcoin fraud.

Cause, you know, enormous amount of data, is like, difficult to copy. Or something. Also, the author thinks there are multiple blockchains, one for each "individual" Bitcoin (which, I guess, he thinks is an indivisible unit of currency).

Bitcoins are stored as electronic files on a computer’s hard drive ... Bitcoins are computer files, similar to a music or a text file

So, author doesn't understand the difference between Bitcoins and private keys giving access to Bitcoins.

Each Bitcoin transaction uses public-key encryption to ensure the transacting parties’ privacy ... public ledger records which Bitcoins have been spent or accepted but does not record the identifying information of the transacting parties, thereby securing users’ anonymity.

That's not what the public-key encryption is for, and no, Bitcoin does not "secure users' anonymity". Even before 2014 there were studies on de-anonymizing Bitcoin users, but I guess if the author didn't even read Nakamoto's paper, can you expect him to read those?