The rapid rise of interest in and use of “virtual currencies” like Bitcoin has been astounding. It probably won’t surprise you to learn what the established masters of the worlds’ monies say: Bitcoin is disruptive!
Bogdan Ulm, writing on Bitcoin Trader, noticed the concern in Ireland:
“Virtual and digital currencies can challenge the sovereignty of states,” says Gareth Murphy, senior Central Bank of Ireland official. At a recent digital money conference in Dublin, he mentioned that rivals are interfering with a bank’s ability to sway the price of credit for the entire economy. Murphy warned that there might be considerable threat to the finances of a country if increasingly more transactions for services and goods fade away from the tax system due to the use of crypto currencies such as Bitcoin.
Now, it’s worth mentioning that there are many economists — from a long tradition — who have denied the necessity of anyone acquiring the ability to “sway the price of credit for the entire economy.”
Separate bids and offers for credit (loaning money with interest) can be seen as signals of competing evaluations in the economy. There are tremendous forces pushing interest rates to align, and when they do (or don’t), their alignment (or lack thereof) sends important additional information to market participants about both the present and the future.
But when anyone (say, a central bank) presumes to corral all interest rates into a “coherent plan,” much of the useful meaning of signals gets lost, or jumbled, and the economy gets (inadvertently?) programmed for boom and bust.
So, when I hear that modern digital currencies could prevent central banks from “doing their business,” I wonder if, perhaps, this is not a good thing.
This is Common Sense. I’m Paul Jacob.