Government adoption of BTC plus fiat-for-BTC?

[vess]

Interesting conversation with a friend last night; over beers we discussed the possibility of a small country, maybe one that currently pegs to the USD, pegging to BTC for their currency.

I'm curious as to people's reactions to this. How would we do such a thing?

My friend suggested the block chain could, for a period of time, allow extra BTC to be generated in exchange for destruction of the existing national currency; separate to his above suggestion, but also intriguing. That is, imagine you're a resident of fijilandia. You'd put in your 50 Fijibucks somewhere, they'd get destroyed, and the next block would include 50 fijibucks worth of BTC for you.

Anyway, fascinating to me. I think it would jumpstart an economy, especially one that produced and exported goods to be based on BTC. I'm trying to figure out how this could be done in a small scale to test viability; maybe some permaculture farmers want to try selling just for BTC?

They'd need to provide BTC purchase access to many of their customers of course; anyway two intriguing ideas.

[TradersEdgeDice]

Sounds like a great idea.  I'd like to see a country try a bitcoin like currency.

You're thinking nonconvertible?  National currency goes in and doesn't come out?  That would mean the government is the sole exchange for awhile.

What country would give up or severely reduce their inflationary powers?  I might move there.

The U.S. constitution says the country deals only in gold and silver but we've been strangled by the Federal Reserve since 1913.

Do you have the skills to modify the code?

[Anders]

Cool idea. Maybe Island could peg their currency to the BTC. They are very much into the Internet.

[elewton]

Greece.  That's where I'd be setting up a Bitcoin exchange if I were a native.

[Anders]

One problem is that the value of a bitcoin changes so much. So for example a Big Mac costing 3 bitcoins today may cost 1 bitcoin next month, and 0.1 bitcoins in three months. So for practical purposes having a currency directly pegged to the BTC is perhaps only feasible when/if the value of a bitcoin stabilizes.

[Alex Beckenham]

One problem is that the value of a bitcoin changes so much. So for example a Big Mac costing 3 bitcoins today may cost 1 bitcoin next month, and 0.1 bitcoins in three months. So for practical purposes having a currency directly pegged to the BTC is perhaps only feasible when/if the value of a bitcoin stabilizes.

That's only if you're comparing the currency to USD.

If so, you could say the same thing about the price of a bigmac in AUD, EUR, JPY... and yet in those countries, the price of bigmacs stays the same. Why? Because an aussie in australia using AUD to purchase bigmacs, doesn't care about the USD exchange rate.

Same would be for BTC if the price were set in BTC and it was the official currency of a whole country.

[Anders]

One problem is that the value of a bitcoin changes so much. So for example a Big Mac costing 3 bitcoins today may cost 1 bitcoin next month, and 0.1 bitcoins in three months. So for practical purposes having a currency directly pegged to the BTC is perhaps only feasible when/if the value of a bitcoin stabilizes.

That's only if you're comparing the currency to USD.

If so, you could say the same thing about the price of a bigmac in AUD, EUR, JPY... and yet in those countries, the price of bigmacs stays the same. Why? Because an aussie in australia using AUD to purchase bigmacs, doesn't care about the USD exchange rate.

Same would be for BTC if the price were set in BTC and it was the official currency of a whole country.

But the bitcoins would still be related to other currencies, such as the USD, in the rest of the world even if Island used only bitcoins themselves. And McDonald's wants dollars. So Island would need to pay McDonald's and all other companies outside Island in dollars (or euros etc) which means that the price for a Big Mac and most other goods and services would change every day! That would be impractical.

[Alex Beckenham]

And McDonald's wants dollars. So Island would need to pay McDonald's and all other companies outside Island in dollars (or

Which McDonalds? McDonalds USA headquarters, McDonalds Island edition?

McDonalds Australia still buys meat, bread, lettuce, etc and I'm sure they pay for it in AUD, not USD.

Why couldn't the Island Maccas pay for their ingredients in BTC?

[Anders]

And McDonald's wants dollars. So Island would need to pay McDonald's and all other companies outside Island in dollars (or

Which McDonalds? McDonalds USA headquarters, McDonalds Island edition?

McDonalds Australia still buys meat, bread, lettuce, etc and I'm sure they pay for it in AUD, not USD.

Why couldn't the Island Maccas pay for their ingredients in BTC?

Island's economy would not be an isolated system. Their economy would still be heavily dependent on trading with other countries and large international corporations. So the price of goods and services in Island would still be determined for the most part by the world economy which today in turn is based on the U.S. dollar and other big currencies.

[kuba_10]

I don't get the pegging idea. Does that mean that, for example La Isla Bonita has $10,000,000 in its vaults and having a 100 pesos bonitos guarantees that $100 from these vaults belongs to the bearer or rather La Isla Bonita writes a financial novelty saying "from now on, 1 peso bonito will buy $10" without any capital?

[Alex Beckenham]

Island's economy would not be an isolated system.

Well neither is Australia's.

[Anders]

Island's economy would not be an isolated system.

Well neither is Australia's.

But you don't see the price of a Big Mac in Australia changing every day! The price of a Big Mac, in any country, in bitcoins, WOULD change every day.

[Alex Beckenham]

Island's economy would not be an isolated system.

Well neither is Australia's.

But you don't see the price of a Big Mac in Australia changing every day! The price of a Big Mac, in any country, in bitcoins, WOULD change every day.

You just argued against your own point. It's exactly what I've been saying.

Why should a bitcoin-based island big mac fluctuate when an aud-based australian big mac doesn't?

[Anders]

You just argued against your own point. It's exactly what I've been saying.

Why should a bitcoin-based island big mac fluctuate when an aud-based australian big mac doesn't?

What I'm saying is simply that the price of things, such as a Big Mac, remains fairly stable over time when the price is in ordinary currencies.

If a Big Mac, or other ordinary goods or service, is priced in bitcoins, the price will change almost on a daily basis.

As an experiment: How many bitcoins does a Big Mac cost today? How many bitcoins did it cost one month ago? One month ago the value of one bitcoin was $1. Today the value of one bitcoin is $7! That's an enormous deflation rate. And it could continue. And no economy can in practice be made isolated from the USD. So what I'm saying is that it would be impractical to have the price of things in the real world in bitcoins. On the Internet it's easier to have prices in bitcoins because the price can be made to change automatically and dynamically minute by minute.

[Alex Beckenham]

So what I'm saying is that it would be impractical to have the price of things in the real world in bitcoins.

This is where we disagree.

I believe that is only the case currently, but wouldn't necessarily have to be the case for an 'island' adopting BTC as it's official currency.

[Anders]

So what I'm saying is that it would be impractical to have the price of things in the real world in bitcoins.

This is where we disagree.

I believe that is only the case currently, but wouldn't necessarily have to be the case for an 'island' adopting BTC as it's official currency.

But that would only work for an island essentially isolated from the rest of the world, without any import or export of goods or services. The trend is that the economy in the world is becoming more and more global.

[charliesheen]

it will happen when the facebook $50 billion valuation goes bust and they have nothing but bitcoins and hardware to show for it.

[zef]

I think there are also practical considerations aside from the economic ones.  It would already need robust infrastructure capable of providing internet service to most of its residents, which may or may not be possible. How would they make every day transactions or offline transactions?  What happens when a tsunami, or hurricane hits it and power is out everywhere, how will people access their money?

I guess my point is that its great for e-commerce, not so much for brick and mortar.  Especially not relatively poor country where access to internet and computers may be considered the exception rather than the rule.  Not to say this wouldnt be possible, im sure solutions could be found.

[Anders]

I think there are also practical considerations aside from the economic ones.  It would already need robust infrastructure capable of providing internet service to most of its residents, which may or may not be possible. How would they make every day transactions or offline transactions?  What happens when a tsunami, or hurricane hits it and power is out everywhere, how will people access their money?

I guess my point is that its great for e-commerce, not so much for brick and mortar.  Especially not relatively poor country where access to internet and computers may be considered the exception rather than the rule.  Not to say this wouldnt be possible, im sure solutions could be found.

Island is country with a small population and massive Internet connectivity. And as for offline money, consider RFID chips with the private Bitcoin crypto keys programmed into them. That would be like real physical coins! Almost. 

[Alex Beckenham]

So what I'm saying is that it would be impractical to have the price of things in the real world in bitcoins.

This is where we disagree.

I believe that is only the case currently, but wouldn't necessarily have to be the case for an 'island' adopting BTC as it's official currency.

But that would only work for an island essentially isolated from the rest of the world, without any import or export of goods or services.

Therefore under that logic it wouldn't work for Australia.

However it is working for Australia currently.

Unbelievable!