Government adoption of BTC plus fiat-for-BTC?

[vess]

Yes, the important point to note here is that using a deflationary but infinitely (well highly) divisible currency throughout an economy, including for production of basic goods might be interesting. It would likely fluctuate vis-a-vis USD some due to trade imbalances, and more due to currency speculators, but could well be useful and stable in a community as is.

As I read through the responses, I think that it raises some interesting questions; using mobile phones, and scratch-and-reveal type cards is likely necessary in a scenario like this, unless the government issues BTC-notes.

Actually, the whole thing would be quite easy if the government kept a BTC wallet and didn't allow fractional reserve banking; you could verify the money supply easily, 1 bill = 1 BTC. The issue then has to do with divisibility though.

We are facing this issue in the Bitcoin community in general right now; decimals are hard to think in. Nefario's 1 satoshi = the actual unit is not a great solution either right now, it's also hard to think in 8 zeros. This is a psychological issue, and one that doesn't seem to be well thought out or solved right now. It would be a factor in this thought experiment as well.

[TradersEdgeDice]

Yes, it's difficult to think that way but I think that's because the transaction fees force the matter.

Transaction fees are not deflating.

[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.

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

However it is working for Australia currently.

Unbelievable!

So Australia has no export or import, no trading with foreign nations at all? Are they manufacturing flat sceen TVs on their own? What kind of car companies do they have?

[Alex Beckenham]

So Australia has no export or import, no trading with foreign nations at all? Are they manufacturing flat sceen TVs on their own? What kind of car companies do they have?

Just letting you know I have read your post and have no intention of responding further.

http://xkcd.com/386/

[Anders]

So Australia has no export or import, no trading with foreign nations at all? Are they manufacturing flat sceen TVs on their own? What kind of car companies do they have?

Just letting you know I have read your post and have no intention of responding further.

http://xkcd.com/386/

Ha! I won!

[markm]

The government could sanction/bless 21 million coin blockchain currencies of any bank that puts 21 whole actual original bitcoins on deposit at the central bank to "back" them. The government could thus act as buyer of last resort for each bank's branded currency (branding is in, branding is cool, everyone wants to brand stuff), buying it at one bitcoin per million coins if no-one else will buy the stuff.

Thus people need not use actual bitcoins, the global reserve currency, in their day to day domestic affairs...

-MarkM- (Actual number of bitcoins to be deposited to back each coin not necessarily having to be 1 per million, of course, that is just an e.g.)

[FreeMoney]

The government could sanction/bless 21 million coin blockchain currencies of any bank that puts 21 whole actual original bitcoins on deposit at the central bank to "back" them. The government could thus act as buyer of last resort for each bank's branded currency (branding is in, branding is cool, everyone wants to brand stuff), buying it at one bitcoin per million coins if no-one else will buy the stuff.

Thus people need not use actual bitcoins, the global reserve currency, in their day to day domestic affairs...

-MarkM- (Actual number of bitcoins to be deposited to back each coin not necessarily having to be 1 per million, of course, that is just an e.g.)

And every bank pays for their own hashing to keep attackers out instead of all of us hashing on one chain? High price to pay just to restrict the number of people you can transact with and add parties that can screw you who incidently have a history of screwing you.

[markm]

The government could sanction/bless 21 million coin blockchain currencies of any bank that puts 21 whole actual original bitcoins on deposit at the central bank to "back" them. The government could thus act as buyer of last resort for each bank's branded currency (branding is in, branding is cool, everyone wants to brand stuff), buying it at one bitcoin per million coins if no-one else will buy the stuff.

Thus people need not use actual bitcoins, the global reserve currency, in their day to day domestic affairs...

-MarkM- (Actual number of bitcoins to be deposited to back each coin not necessarily having to be 1 per million, of course, that is just an e.g.)

And every bank pays for their own hashing to keep attackers out instead of all of us hashing on one chain? High price to pay just to restrict the number of people you can transact with and add parties that can screw you who incidently have a history of screwing you.

You want the banks to let *you* join the "folk who can screw them" club?

Unlikely. Right now "all" you have to do is splice into their Interac cables, little hashing required. Why would they *give* you a line into their network?

How much is their existing network costing them? $1.50 per transaction they do at a box in a bar for a patron of the bar? Or are they soaking that sucker er I mean patron for a whole lot more than their actual costs?

I expect the only "thick clients" on their network will be their own branches, the government central bank watchdog of each nation they have licensed branches in, and the clearing house / exchange centre of each other bank they interac(t) with.

-MarkM- (Regular Joes don't want thick clients anyway, right?)

P.S. They could even set difficulty targets. "We know the authorised processing power for hashing each participant has registered and contracted to maintain, so if difficulty rises we start a network audit to discover where the unauthorised hashing is taking place..." (Such attempts to disrupt the network would probably be at least a federal offence, if not an act of war...)

[Alex Thornton]

Implementing this plan would not be too difficult. In fact, it has already been done before in Brazil with the Plano Real (Real Plan, in English).

Basically, the Brazilian currency, cruzeiros, was suffering from hyperinflation of up to 1200% per year. So they made spending reforms and an imaginary currency called Unidade Real de Valor ("URV"). Everyone was forced to list the prices of their goods in URV. Each day, the government listed the exchange rate between URV and cruzeiros.

Say, for example, that milk costs 1 URV. On a given day, 1 URV might be worth 10 cruzeiros. A month later, milk would still cost 1 URV. But that 1 URV might be worth 20 cruzeiros.

Finally, all the cruzeiros were exchanged for URVs (which are now called "reals").

A country could use this same method with Bitcoins instead of URVs.

Also see the NPR Planet Money podcast.

[Sjalq]

That government would not get a free ride to stable currency and shouldn't.
The government of Fijilandia can sell state assets to bitcoin holders and so build up their bitcoin reserves. They can then issue a BTC backed currency that they themselves would need to manage at whatever peg they wish. Bitcoin is highly divisible, so that should be fairly simple.

Bottom line is, if bitcoin works in Fijilandia, it will work without the backing of Fijibucks by bitcoin.

Freedom to Fijilandia!

[vess]

Ok, now we need a small island willing to try out BTC as a seconday ad-hoc currency to test your assumption. Anyone?

[TiagoTiago]

The issue would be when there are less bitcoins for sale than people wanna exchange for Fijibucks, or vice-versa, sure the government would enforce the price inside it's borders, but people could still go to other countries and try to offer an exchange at better rates than can be achieved inside Fijilandia, then come back inside Fijilandia and do the exchange in the other direction and profit lots.

[vess]

I agree that's a problem if there was a fixed exchange rate, (although, see China). I was more imagining a one-time move-over to a situation in which there is no more fijibucks after the "E-Day" (for exchange day).

I'm not clear in that case that there would be exchange pressure. I bet someone who knows what hard currency issues are like in Zimbabwe right now would be able to tell us a bit about this.