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Financial Gloalization and it Crptocurrenc Dicontent
Propoal for monetar reform, whether mild or radical, are alwa and everwhere informed ome underling theor of mone. A week ago I
pent two da talking with a group of technologit and lawer–perhap I hould a digital coder and legal coder–and preed them on thi
point. Chatham Houe rule prevent me from aociating view with actual people, ut the view themelve are the important thing.
o far a I undertand, and it i important to emphaize that there wa not conenu on the detail, the technologit ee themelve a creating a
form of mone more trutworth than that iued overeign tate, more trutworth ecaue the rule of mone creation (whether proof-of-
work or proof-of-take or whatever) limit iue to a xed and nite quantit. carcit of the token toda, and con dence that carcit will e
maintained in ear to come, are uppoed to upport the value of the token toda. Importantl, no uch con dence can e attached to tate-
iued mone; quite the contrar tate are een a reliale auer of mone iue for their own purpoe. Crptocurrenc i digital gold while at
currenc i jut paper, uject to overiue and hence depreciation.
From thi point of view, current holder/uer of crptocurrenc are jut earl adopter. Once everone ele realize the uperiorit of
crptocurrenc, the will all want to witch over, and the value of at currenc will collape. The ( uctuating) propect of that eventual
witchover how up toda in the ( uctuating) exchange rate etween crpto and at (a here). And the ( uctuating) propect of di erent
crptocurrencie how up toda in the ( uctuating) exchange rate etween di erent crptocurrencie (a here). According to the theor, one of
the crptocurrencie will e the future gloal currenc, replacing the dollar, ut no one know which one. People who got into Faceook at the
eginning are all multimillionaire; earl adopter of the future gloal crptocurrenc will e too, ut which one will it e? That’ what the lack of
conenu aout the detail i all aout.
One of the mot facinating thing aout the technologit view of the world i their deep upicion (even fear) of credit of an kind. The
appreciate all too well the extent to which modern ociet i contructed a a we of interconnected and overlapping promie to pa, and the
don’t like it one it. (One of m interet thee da i “Financialization and it Dicontent”, and I dare a that the dicontent of the
technologit i a deep a that of the mot committed Polanian, ut of a completel oppoite ort.) Fiat mone i untrutworth enough,
promie to pa at mone are doul untrutworth. One wa around the prolem would e to require full collateralization of all uch promie,
https://www.ineteconomics.org/perspectives/blog/can-bitcoin-replace-the-dollar 1/4
7/15/2018 Can Bitcoin Replace the Dollar?
mae even uing o-called “mart contract” technolog to enure that promied pament are made automaticall, aicall an equit-aed
rather than det-aed tem. In e ect, we have here a verion of Henr imon’ Good Financial ociet, ut with peer-to-peer crptocurrenc
taking the place of hi 100% reerve mone. imon wa of coure reponding to the gloal credit collape of the Great Depreion; the crpto are
reponding intead to the more recent gloal nancial crii.
I view all of thi through the len of the mone view, which place anking at the center of attention, view anking a fundamentall a wap of
IOU, and view mone a nothing more than the highet form of credit. It i view developed not o much around a philoophical ideal ut rather
a a wa of making ene of the operation of the world a it actuall exit, outide the window a it were. In that world, the pament tem i
eentiall a credit tem, in which o etting promie to pa clear with onl ver minimal ue of mone. And price arie from the activit of
pro t-eeking dealer who aor uctuation in demand and uppl tanding read to take an exce onto their own alance heet, reling on
credit market to fund the reulting inventor uctuation. One can imagine automating a lot of that activit–and lockchain technolog ma well
e ueful for that tak–ut one cannot imagine eliminating the credit element. Credit i not a ug, ut a feature.
Thi point of view draw pecial attention to the place where market are eing made to convert one crptocurrenc into another, and epeciall
the place where market are eing made to convert crptocurrenc into o-called at. omeone or omething i making thoe market, and in o
doing expanding and contracting a alance heet, in earch of expected pro t (ee here for example). Crpto fear credit, ut I upect the will
oon dicover that credit i a feature not a ug, and that will require them to re-examine the implicit monetar theor that underlie their coding.
To date, technologit eem to have felt that the have nothing to learn from the operation of the exiting monetar and nancial tem, a their
diruption i intended to replace it with omething etter. ut from a mone view tandpoint, it i the intitution of credit that i the real
diruptor, which i fundamentall wh it i feared, crpto and alo the ret of u. The anwer, a agehot long ago taught u, i not to
eliminate credit ut rather to manage it, and “Lomard treet ha a great deal of mone to manage”.
Perry G. Mehrling
Academic Council
Professor of Economics, Barnard College
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https://www.ineteconomics.org/perspectives/blog/can-bitcoin-replace-the-dollar 2/4
7/15/2018 Can Bitcoin Replace the Dollar?
it seems to be the case of science progressing one death at a time; the old generation don't understand
bitcoin, while the new generation is astonished how anyone can fail to see its obvious merits, especially given
how both cumbersome and speculative the legacy financial system is
it seems to me that what the profession is saying is simply that he doesn't see how there can be an alternative
to the existing credit-driven economy. neither does anyone know how it will function, but to deny the
possibility on the basis of one's lack of vision is intellectually deficit
Profession, if and when the inevitability of the rise of bitcoin will be entirely beyond question, the only way you
can stay at all relevant is to help the new clueless generation navigate the new system, call attention to risks,
using your wealth of experience. Things change.
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