Negative Interest Rates and Cryptocurrencies

[bitinlet]

Let me start by saying I'm a big supporter of Bitcoin. I like everything about it. I love the technology, how it's an alternative to fiat, etc. However, as a supporter, I've grown more and more dubious of its founding.

Even more recently, I've started to see more reason to fear how governments could use this technology in ways currently unforeseen. For example, let's just say governments convince the public of Bitcoin's merits as a replacement for cash, and decide to do away with cash. Let's say they institute their own crypto. The Fed, governments and the public moved towards a system similar to Bitcoin for cash-like exchanges. Maybe we even kept our non-cash, bank-related transactions as they are - digital. What becomes extinct under this scenario? Non-gov't sanctioned cryptos and cash.

To me this presents a very large problem and the problem is in regards to interest rates. As you may know, the ECB recently announced a negative interest rate policy. To many this seems straight-up confusing. So, you're charging people to save? Basically, yes.

The one defense against this is - cash. What do I mean? Well, cash can be put in your pocket or under your mattress and in a sense save your money (because the alternative is you losing money by putting it in a bank). You can't do this with digital cash stored in a bank under this scenario. Of course, one could argue that independent cryptocurrencies (as they currently are) would also be protection. But, I think my issue with that is, governments at large could ban them. Yes, whether we want to admit this or not, this is possible.

So, for example, the US gov't (and gov'ts like it) could create their own crypto, ban all "free" cryptos", do away with cash and institute negative interest rates - sucking out all monetary wealth to pay for it's ever-growing debt.

I'm probably reading too much into this, but this scares the crap out of me... please calm me down...

[mattbeller]

It looks like you go wrong when you describe a scenario where governments do away with cash, institute their own crypto, and make Bitcoin et al extinct.

For the same reason that (some) people choose Bitcoin over Dollars right now, nobody would choose NewStrongCryptoDollars over Bitcoin, especially if there's an expectation for governments to abuse controlling it the way you describe. Check out Gresham's Law. http://en.wikipedia.org/wiki/Gresham's_law

Another thing to think about is that Bitcoin as the core of a monetary system does not preclude the existence of "cash". Are you familiar with Casascius coins? Also, keep in mind that at the core of the US dollar system is just a bunch of computers run by the Federal Reserve keeping an account of who owns how many dollars. Certain dollar liability accounts, associated with the Treasury Department, are matched up with physical notes ("cash"). Aside from the decentralized aspect, that's exactly how it works/could work with Bitcoin, except that instead of the Treasury Department, it would just be a trusted institution producing and circulating the notes.

[franky1]

For example, let's just say governments convince the public of Bitcoin's merits as a replacement for cash, and decide to do away with cash. Let's say they institute their own crypto. The Fed, governments and the public moved towards a system similar to Bitcoin for cash-like exchanges. Maybe we even kept our non-cash, bank-related transactions as they are - digital. What becomes extinct under this scenario? Non-gov't sanctioned cryptos and cash.

if the government made their own altcoin, go ahead let them... let them tax the altcoin, in the grand scheme of things it makes no difference bitcoin is bitcoin and an altcoin/FIAT is an altcoin/FIAT

by moving away from bank notes makes bitcoin more accessible and the general public will begin to understand crypto-currencies better. they can then choose to stick with the government controlled coin or the freedom of international, uncontrolled bitcoin.

To me this presents a very large problem and the problem is in regards to interest rates. As you may know, the ECB recently announced a negative interest rate policy. To many this seems straight-up confusing. So, you're charging people to save? Basically, yes.

if the government done a negative interest rate on a altcoin then it will be the exact same as freicoin, (worth researching)

The one defense against this is - cash. What do I mean? Well, cash can be put in your pocket or under your mattress and in a sense save your money (because the alternative is you losing money by putting it in a bank). You can't do this with digital cash stored in a bank under this scenario. Of course, one could argue that independent cryptocurrencies (as they currently are) would also be protection. But, I think my issue with that is, governments at large could ban them. Yes, whether we want to admit this or not, this is possible.

there is no single point/ center / origin where governments can prevent the use of bitcoin. even if they tried to just make it illegal to use bitcoins, it will just be like the alcohol prohibition era and the current drug laws... people still buy it and get wasted each day...

So, for example, the US gov't (and gov'ts like it) could create their own crypto, ban all "free" cryptos", do away with cash and institute negative interest rates - sucking out all monetary wealth to pay for it's ever-growing debt.

I'm probably reading too much into this, but this scares the crap out of me... please calm me down...

yea your broad stroking alot of things and moving into sci-fi apocalypse story lines. i prefer to read documentaries.. which this topic will never be. in 50 years this would be on the fantasy channel, not the history channel.

summary:
governments can make their own freicoin copies and have negative interest rates to force consumers to spend instead of save. governments can get rid of bank notes.. but nothing governments can do would every totally destroy bitcoin.

[bitinlet]

To play devil's advocate on Gresham's law, I see potential reasons this would fail:

1) It's assumed there needs to be a switch from cash to NewStrongCryptoDollars. That's not the case. The dollar would remain the dollar (in the sense it's still a dollar in your online bank account). Your checking, savings accounts would still be your checking or savings accounts. The paper dollar would be the change - it would no longer have value more than it's inherent worth as an artifact. The only difference would be the birth of the new crypto. I could see this happening "before" they make dollar bills worthless.

2) This law assumes a free-market. I'm pretty sure we're entering a period where freedom is being condensed.

3) This assumes people understand what's going on around them. Cryptocurrencies, why it matters, etc.

4) It's also assuming that the entire world economy would never do this in unison. I'm not so sure about that one either. At the very least, I think the ECB, BOJ, BOE and Fed have been very much on the same page.


On the other part, I'm not saying Bitcoin or it's Gov't-like crypto would preclude cash. It doesn't have to at all. My fear really has to do with cash itself. I think some don't see why cash has value in and of itself (at this time period in history) and I'm trying to spell out why it does. Bitcoin and cash living together is 100% good by me. I just don't think it's wise for us to support the destruction of cash in totality.

It's certainly a conspiracy theory, but I'm kinda hinting that this (negative interest rates) could have been the plan from central banks from the get-go. Bitcoin was created right around the Great Recession by umm... we don't know (kinda odd). It would be pretty genius if the central banks developed a method to grow acceptance of cryptocurrency outside government, do away with cash in order of "progress", only to later begin negative interest rate policy worldwide and begin the painful develeraging that will eventually need to occur.

This is certainly fear... no doubt. It probably won't happen. But, I'm just worried about it and I think the fear is kinda justified.  

[acs267]

I don't think you realize it, but Bitcoin will still be there. Even if that ban it, people can STILL use it. Wow, really, Acs? Yup. Because Bitcoin is digital. It's it own growing blockchain. No one controls that. No one controls what address you use. What harm could 'banning' it do?

Nada.
Nothing.
No hables es Engles, amigos.

You act like every Bitcoiner would hop to the Government, when EVERYDAY someone is bashing theirs. Yup, they gonna jump straight into their hands, huh?

[DooMAD]

As you may know, the ECB recently announced a negative interest rate policy. To many this seems straight-up confusing. So, you're charging people to save? Basically, yes.

Technically, you're being charged to save already if the rate of interest you earn on your savings is less than the rate of inflation.  No one seems to care, though, for some reason.  Perhaps negative interest rates will trigger some sort of psychological barrier, people might actually take notice and it'll be different then, but I doubt it somehow.  It's surprising how much people are prepared to tolerate if you push gently, little by little, piece by piece.  Theft by subtlety works wonders, it seems.

[jc01480]

Stay calm and hash on, my friend!

[CaptEmulation]

I thought the negative interest rate was just for central bank loans?  I hadn't heard banks would charge consumers negative interest on savings.

[ArnoldChippy]

I thought the negative interest rate was just for central bank loans?  I hadn't heard banks would charge consumers negative interest on savings.

The banks will pass the costs on to customers through account 'fees'.

[franky1]

I thought the negative interest rate was just for central bank loans?  I hadn't heard banks would charge consumers negative interest on savings.

lol as if !!

you imagine a bank would give you a loan of X and each year without you having to pay, your loan gets smaller??

the news was always about making peoples bank accounts smaller

[Este Nuno]

It looks like you go wrong when you describe a scenario where governments do away with cash, institute their own crypto, and make Bitcoin et al extinct.

For the same reason that (some) people choose Bitcoin over Dollars right now, nobody would choose NewStrongCryptoDollars over Bitcoin, especially if there's an expectation for governments to abuse controlling it the way you describe. Check out Gresham's Law. http://en.wikipedia.org/wiki/Gresham's_law

Another thing to think about is that Bitcoin as the core of a monetary system does not preclude the existence of "cash". Are you familiar with Casascius coins? Also, keep in mind that at the core of the US dollar system is just a bunch of computers run by the Federal Reserve keeping an account of who owns how many dollars. Certain dollar liability accounts, associated with the Treasury Department, are matched up with physical notes ("cash"). Aside from the decentralized aspect, that's exactly how it works/could work with Bitcoin, except that instead of the Treasury Department, it would just be a trusted institution producing and circulating the notes.

I think you overestimate people. I can almost guarantee that people would use a government backed digital currency regardless of how rational it is.

[cbeast]

Governments *should* create their own cryptocurrencies, and that will be good for Bitcoin. But, they cannot create a PoW coin like Bitcoin, because they would be constantly threatened by 51% attack from foreign powers. They could only issue PoS premined coins issued by a virtual mint.

[franky1]

I think you overestimate people. I can almost guarantee that people would use a government backed digital currency regardless of how rational it is.

nah, i think people will wake up.. not at first move to bitcoin, but move to credit unions first

[doldgigger]

Let me start by saying I'm a big supporter of Bitcoin. I like everything about it. I love the technology, how it's an alternative to fiat, etc. However, as a supporter, I've grown more and more dubious of its founding.

Even more recently, I've started to see more reason to fear how governments could use this technology in ways currently unforeseen. For example, let's just say governments convince the public of Bitcoin's merits as a replacement for cash, and decide to do away with cash. Let's say they institute their own crypto. The Fed, governments and the public moved towards a system similar to Bitcoin for cash-like exchanges. Maybe we even kept our non-cash, bank-related transactions as they are - digital. What becomes extinct under this scenario? Non-gov't sanctioned cryptos and cash.

To me this presents a very large problem and the problem is in regards to interest rates. As you may know, the ECB recently announced a negative interest rate policy. To many this seems straight-up confusing. So, you're charging people to save? Basically, yes.

The one defense against this is - cash. What do I mean? Well, cash can be put in your pocket or under your mattress and in a sense save your money (because the alternative is you losing money by putting it in a bank). You can't do this with digital cash stored in a bank under this scenario. Of course, one could argue that independent cryptocurrencies (as they currently are) would also be protection. But, I think my issue with that is, governments at large could ban them. Yes, whether we want to admit this or not, this is possible.

So, for example, the US gov't (and gov'ts like it) could create their own crypto, ban all "free" cryptos", do away with cash and institute negative interest rates - sucking out all monetary wealth to pay for it's ever-growing debt.

I'm probably reading too much into this, but this scares the crap out of me... please calm me down...

Haha. Did you see how the negative interest rate step from the ECB hit the Euro exchange rates during the next few days? But who cares. Even if they decide to wreck the Euro, today's free world always has alternatives that can be used.

Going from there, I think that your concern can be reduced towards: "governments could ban BTC". Because if they don't, who would care about their own altcoin having theoretical flaws?

So, open up the newspaper and watch governments banning BTC, in order to get an idea about how big the risk is.

[bitinlet]

I suppose the main point of this thread is:

If it ever came to it, we supporters of Bitcoin should not support the government doing away with physical cash, nor should we see cash as a threat to crypto. Further, any crypto that uses bank-like principals and is supported by a central bank, should also not be supported by this community.

The main reason for both, at least as far as this thread is concerned, is negative interest rates. There's good reason to believe this is not just fanatical talk. If you really believe the Fed doesn't have a choice but to continue expanding the Money Supply, or believe they'd fall back in recession if they did really stop the expansion. Then the truth is even if they stop, they'll just  begin anew. If we also acknowledge government debt is growing out of control. There's reason to believe the government may need to obtain additional money quickly. Capital controls have already been used in other countries, now negative interest rates are being used. Are we asking why? Regardless of the answer, there's away around each - crypto and cash. One can be banned by country law, the other done away with in the name of "progress". Just a word of warning is all.

[BetMoose]

I'm wondering if we'll see a negative interest rate in the U.S...

It's been at 0.25 for awhile and growth is less than expected.

http://www.tradingeconomics.com/united-states/interest-rate

[bitinlet]

I'm wondering if we'll see a negative interest rate in the U.S...

It's been at 0.25 for awhile and growth is less than expected.

http://www.tradingeconomics.com/united-states/interest-rate

I'm from the US. I believe yes, there's a very good chance we will. Hence, the thread.

[DooMAD]

I'm wondering if we'll see a negative interest rate in the U.S...

It's been at 0.25 for awhile and growth is less than expected.

http://www.tradingeconomics.com/united-states/interest-rate

I'm from the US. I believe yes, there's a very good chance we will. Hence, the thread.

It's pretty much all they can do.  Lower the interest rates, raise the debt ceiling and kick the can a little further down the road to delay the inevitable.  Default.  If interest rates had stayed at "normal" levels, around 3% - 5%, it would have been all over by now.  But instead they pretend it's not an issue and move the goalposts yet again.  The spiralling debt vortex is out of control and there's no way to fix it.  Enjoy life on life support. 

Prognosis:  Terminal

[allthingsluxury]

I'm wondering if we'll see a negative interest rate in the U.S...

It's been at 0.25 for awhile and growth is less than expected.

http://www.tradingeconomics.com/united-states/interest-rate

I'm from the US. I believe yes, there's a very good chance we will. Hence, the thread.

It's pretty much all they can do.  Lower the interest rates, raise the debt ceiling and kick the can a little further down the road to delay the inevitable.  Default.  If interest rates had stayed at "normal" levels, around 3% - 5%, it would have been all over by now.  But instead they pretend it's not an issue and move the goalposts yet again.  The spiralling debt vortex is out of control and there's no way to fix it.  Enjoy life on life support. 

Prognosis:  Terminal

Agreed, extend and pretend. That's all they have left.

[BetMoose]

Looks like you learn something new every day - kind of helps being the admin on BetMoose; this is what drew my attention to the issue:

https://www.betmoose.com/bet/us-interest-rate-to-fall-below-0--within-12mo-190

--

Would we not see 0% for at least a year or two before it going negative (if things don't improve)?

[Este Nuno]

Looks like you learn something new every day - kind of helps being the admin on BetMoose; this is what drew my attention to the issue:

https://www.betmoose.com/bet/us-interest-rate-to-fall-below-0--within-12mo-190

--

Would we not see 0% for at least a year or two before it going negative (if things don't improve)?

Personally I'd go with no.

Maybe I'll throw on a bitcent or something.

A year is not a very long time. I would think since the euros did it first they'll wait it out to see some results over there first.

[ShakyhandsBTCer]

I'm wondering if we'll see a negative interest rate in the U.S...

It's been at 0.25 for awhile and growth is less than expected.

http://www.tradingeconomics.com/united-states/interest-rate

I'm from the US. I believe yes, there's a very good chance we will. Hence, the thread.

"real" interest rates are below zero once you factor in inflation

[BetMoose]

I'm wondering if we'll see a negative interest rate in the U.S...

It's been at 0.25 for awhile and growth is less than expected.

http://www.tradingeconomics.com/united-states/interest-rate

I'm from the US. I believe yes, there's a very good chance we will. Hence, the thread.

"real" interest rates are below zero once you factor in inflation

Great point heh

[MyPotPlantDied]

It sure seems like the traditional banking system is shooting themselves in the foot. The question is, can they really be that oblivious or is it part of a bigger plan?

[doldgigger]

It sure seems like the traditional banking system is shooting themselves in the foot. The question is, can they really be that oblivious or is it part of a bigger plan?

Sure it is. Some courageous Bitcoiner went to the ECB and asked kindly if they would mind wrecking the Euro so he could sell more Bitcoins...

[guybrushthreepwood]

Negative interest rates are a big problem and another plus for cryptocurrencies. Some of the recent examples of banks charging and even governments dipping into peoples savings are atrocious and this wouldn't happen with bitcoin.

[Balls]

I'm wondering if we'll see a negative interest rate in the U.S...

It's been at 0.25 for awhile and growth is less than expected.

http://www.tradingeconomics.com/united-states/interest-rate

I'm from the US. I believe yes, there's a very good chance we will. Hence, the thread.

"real" interest rates are below zero once you factor in inflation

Great point heh

True. It's a real problem that the wages aren't increasing proportionally with inflation. Prices keep going up and wages always stay the same.

[lihuajkl]

If government institutes a cryptocurrency, the crypto is supervised  and distributed by government. What I am concerned is not about interest rate but that it becomes the counterpart of bitcoin protocol. It is no longer decentralized and anonymity.

[bitinlet]

It sure seems like the traditional banking system is shooting themselves in the foot. The question is, can they really be that oblivious or is it part of a bigger plan?

Agreed. This is my fear. I don't think they are that stupid, so it very well may be a bigger plan.

I don't want to start a conspiracy theory or anything, but since we know very little to nothing about the originator, don't you think it could at least be "possible" (unlikely, but possible) that the government is somehow involved in the setting up of Bitcoin? I mean it's kinda uncanny that it began right around the biggest financial crisis in history. It's also odd that it could potentially lead to a solution to the underlying economic problem that started the crisis - leverage. All that said, I don't really believe the gov't was involved in Bitcoin's origin. I think it's unlikely, but possible. If I had to bet - I'd say it was a coincidence. But, at the very least, I do believe they (primarily the US gov't) are allowing it to flourish now because they know they can tax it for now, easily step in at any time, create their own alternative and at that point have a free infrastructure in place (via Bitcoin).

Don't get me wrong, even if any of this was true. I don't think this should stop anyone from supporting Bitcoin. What Bitcoin does is necessary. It's a necessary evolution.

In short, I am not worried at all about Bitcoin, regardless of who was behind it's origin. I'm worried about a desperate government (or world of governments) using it as a solution for it's own policy mistakes.