Will central banks popularize cryptocurrency?

With the collapse of the FTX platform, many cryptocurrency watchers are sounding the alarm. Central banks are taking advantage of this to advance their pawns on the chessboard of centralized digital currencies and regulation. But isn’t forcing citizens to switch to these state-controlled digital currencies an indirect promotion of private digital currencies?

We have been talking a lot about cryptocurrencies since the FTX bankruptcy. Some rejoice that gullible speculators go broke and are therefore punished. In their opinion, the bankruptcy of FTX will prove that the currency is too serious a thing to be entrusted to private individuals, and it can only be run by impeccable officials who care about the public good and the general interest.

However, the announcement of the birth of bitcoin could only appeal to adherents of classical liberalism. My book tells the origin of this story and the context of Bitcoin.

The Birth of Bitcoin: A Revolt Against Monetary Policy and Privacy Control

Since 1971, the currency is no longer tied to anything in particular. He returned to net credit. Debt registries are maintained by banks and central banks. But the great modern financial magicians have neglected what the ancients had learned: to prevent the risk of over-indebtedness, loans must be backed by a specific guarantee and provide for jubilees or periodic debt forgiveness. Without this security, financial crises multiply.

Along with the development of telecommunications networks, paper money is beginning to fall into disuse in developed countries in favor of bank accounts, debit or credit cards and electronic records.

Our currency is not only an abstract social convention, but also largely dematerialized.

In 2008, instead of going bankrupt, central banks are increasing credit by cutting rates.

Not only have rates been cut to zero, but central banks have been intervening freely in debt registers by engaging in debt buybacks. This is QE or QE, a chic new expression to drown the fish of monetary creativity.

In January 2009, Satoshi Nakamoto (pseudonym) created a new “currency”.

The Bitcoin network is a medium of exchange; Bitcoin is an electronic, decentralized and private unit of account.

This is a fiduciary money revolution similar to the Internet revolution for information. Nakamato, whose identity remains undisclosed, intends to respond to those who are concerned about the excesses of finance and fiduciary currencies subordinated to central banks.

It is likely that Satoshi Nakamato (or the group of computer scientists behind this pseudonym) was also sensitive to Edward Snowden’s denunciations regarding US government surveillance of private data. The public revelations of Snowden, a former CIA and NSA, date back to 2013, but a wide-ranging surveillance program began in 2007. Some bitcoin experts note that the code is based on an encryption algorithm called SHA 256, developed by the US National Security Agency. Edward Snowden’s employer.

Here is what those who are eyeing the little bitcoin think of it:

“Bitcoin’s theoretical roots can be found in the Austrian School of Economics and its critique of the current fiat money system and interventions by governments and other agencies that they believe are causing business cycles to escalate and massive inflation. ECB, October 2012

Monetary competition, as Hayek imagined it, became possible even in the absence of self-control by governments. […] The ECB suspects (correctly) that Hayek’s theoretical work was the spiritual rector of today’s cryptocurrencies » Stoeferle & Valek

“Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative.” Nassim Nicholas Taleb

“Currency” for geeks and speculators, but not for ordinary people

Now 13 years old, bitcoin has already passed the age of reason. Alas, this slightly autistic child is only of interest to benevolent geeks and profiteers.

Here is a cruel observation made recently:

“Go outside with bitcoins, you won’t buy bread or meat or a house. Cryptocurrencies have never performed the main function of a currency. First mirage.

If cryptocurrencies were a safe haven from inflation, they would have to rise in value when inflation hit. The opposite happened: the entire cryptosystem collapsed as inflation rose. In proportions that are clearly more severe—about minus 70%—than most other asset classes.

Finally, the dollar has never done so well while cryptocurrencies bite the dust. None of the original crypto promises have been delivered. Nobody.

Even worse: a whole crypto-financial ecosystem with crypto-banks and crypto-financial centers has been added to cryptocurrencies. »

The bitcoin teenager’s report card is nasty, but these are facts, not subjective assessments. They note that so far, bitcoin has not conquered the general public who have not appropriated this currency. Ignore the value of technology or the usefulness of the concept of democratic money, i.e. not controlled by anyone.

Birthplace of bitcoin?

In fact, bitcoin was born with the same genetic defect as the currencies it intends to compete with: it has no roots in reality. It is an intangible currency. It should be recognized that it is no longer based on trust in the state, like the main fiduciary currencies, but is based on trust in the algorithm.

For mere mortals, the algorithm is an esoteric and intangible concept. Mere mortals use their debit card or smartphone payment system, make more and more transfers from the banking interface, but mere mortals do not use bitcoin. In short, in thirteen years of existence, the most famous of the cryptocurrencies has not become a used currency. It has not been democratized.

Are Central Bank Digital Currencies Rushing to the Rescue of Bitcoin?

However, the more time passes, the more the consequences of monetary policy errors become visible. Monetary inflation has finally driven up the prices of everyday life, not just the price of financial assets and real estate. Now it has become a sensitive topic.

If central banks say they’re fighting price increases by raising rates, isn’t that an admission that they spurred it on by cutting rates? This evidence begins to creep into the minds of the guinea pigs of their money experiences. The trust capital of fiat currencies is declining somewhat.

Given unsustainable levels of debt, rate hikes will fade away and money creation will soon resume.

In the meantime, the European Central Bank is likely to take steps to promote its digital euro because people will have to be imprisoned to prevent flight from the currency when the majority realizes that it was created at the behest of the elite to serve their only will. . In this context, Bitcoin becomes a competitor that needs to be eliminated.

Gerard Dréant considers central bank digital currencies useless for users:

“The development of digital currencies of central banks, be it the euro or others, is a completely secondary phenomenon, useless for users and only marginally contributing to the goals of government organizations. They could only get a significant share of payments if the use of cryptocurrencies was seriously hampered by regulatory or legal measures that would repel users.

He is right on this point. On the other hand, these central bank currencies seem to me to be very useful “for the purposes of government organizations” and not in a marginal way at all. Because the goal is to seize as much power as possible. Such currencies allow:

• full control over any private transaction,
• targeting private transactions to sectors that the omniscient see as beneficial.

But in their desire to force everyone to accept digital currency and limit the ability to pay in cash, central banks are also moving down a slippery slope.

Government currencies are nothing more than units of account for influence trading.

The general public might finally realize that the current currency is nothing more than a unit of account for trading in influence, that it is used for political purposes and against their interests.

He might find that, in the last analysis, the demand for public money is artificial, brought about only by tax and tax. Because if central banks create money on their own without any problems, why not cover government spending with the same money instead of resorting to taxes?

He might then find that a competing technology is available that is free from the disadvantages of the centralized currency he is forced to use.

He may be tempted to come to this, thus giving Taleb the final word: “a currency without a government, something necessary and imperative. »

So central banks will do everything to avoid breaking out of their monetary monopoly. They have means: taxation, rules, restrictions. They do not meet with much resistance, since cryptocurrencies do not have consumer value. And FTX’s bankruptcy gives them an opportunity to nip the competition in the bud.

“The history of government control of money is, apart from a few happy periods, a history of incessant deceit and fraud.” Friedrich von Hayek, Real Money Contest.

For millennia, there was “money without government”: it was gold and silver. As I explain in my book, monetary policy never serves the people. By avoiding the use of cryptocurrencies, maybe people have missed the opportunity to free themselves? Time will tell, but a major currency crisis is brewing.