Is That a Virtual Dollar in Your Pocket?
Matthew Lynn on BitCoin, Amazon, and other virtual currencies:
We might be reaching the point where virtual currencies start to pose a real challenge to the existing ones: the dollar DXY +0.06% , euro EURUSD -0.04% , yen USDJPY -0.04% and pound GBPUSD -0.78% . Indeed, at the end of last year, the ECB put out a paper warning about the competition from these new currencies. Although still small, the paper suggested they might undermine the credibility of national currencies.
It is not hard to see why central bankers are worried. Right now, virtual currencies are tiny. Hardly anyone is taking them seriously. And yet people are increasingly losing faith with traditional currencies. They are losing value steadily to inflation. And quantitative easing and currency wars mean they are constantly being debased. They are open to alternatives.
Plenty of investors have been turning to gold. Russia and China are building up their reserves, and so are many private individuals. But gold has always had its own problems as a currency. After all, if it was perfect the world would not have stopped using it as a currency. It has irregular supply. And it is as prone to crashes and collapses as any other monetary unit.
There is little doubt there is a demand for virtual currencies. They are, of course, completely untested. But with so much of the world’s business now conducted online there is little reason why currencies shouldn’t be minted online as well.
Money is whatever two or more people agree it is. Giant tablets, gold coins, bits on a hard drive. Virtual currencies have an advantage in that central banks can’t just print them up willy-nilly, at a time when trust in government is reaching critically low levels.
Commerce must be conducted by some means people can trust. That trust is largely blown, but we don’t yet have a replacement for central banks. Not really. That could be a scary transition. But the really scary one is when trust breaks down completely, and contract and security solutions go private.
Will it be Mad Max or Galt’s Gulch? Nobody knows.
The US Govt will likely resist paying interest in anything but a currency they can print and since bonds are a widely held investment (and I use that word loosely) currency conversion becomes a major issue. You could end up seeing retailers posting multiple prices and/or conversion rates (a loaf of bread = 10 US dollars or 3 Utah dollars or 1 Amazon dollar) so that they are prepared to take whatever the consumer has available to purchase with. This might not be such a major obstacle in the age of ubiquitous data processing (maybe soon to be in watches!)
Whatever the potential obstacles, living with them will be a damn sight better than enduring an economic collapse due brought on by central bank Phds destroying the currency.
The term black market comes to mind. If the government won’t provide a currency worth anything then an unofficial market will.
Also people have been screwing Uncle Sam out of taxes for some time. For example I knew of a motorcycle sale between individuals in which $2000 cash was paid for a used one. The bill of sale however was for $1500. The registration tax was therefore lower for the buyer and the seller had $500 that his old lady didn’t know about.
We already have a case study for this: Bitcoins and their use on SilkRoad (online store where all sorts of contraband are sold) and Wikileaks donations (after credit cards cos refused to approve).
Preferably more. Lots more. If the money you’re offering me is only good in a future trade with you, it’s not even as good as barter. Then again, data bits traded among, say, PayPal users or Amazon customers would have some potential.
The key question is going to be the IRS regulations on alternative currencies. Right now it’s pretty loose–”loyalty points” are not taxed, for example. But alternative currencies are a direct attack on the New York-centric banking system and will have to be either destroyed or co-opted if they gain any sort of popularity.
However, for the first time since Andy Jackson nearly all Americans have decided that the banking system as currently constituted does more harm than good. So it looks like we’ve got a fight brewing…
Amazon coins are simply vouchers that are called coins. They’ve got nothing to do with currency.
The progressives may be geniuses. If an old system is on the way out, you gut it and take as much as you can be for it becomes worthless. If virtual currencies are the up and coming thing, hard currencies will probably sell for pennies on the dollar and we come out of this smelling like a rose, except for the poor bond holders who got suckered into a sure thing.
Do people see their life-styles changed? Maybe government is secretly shredding money to make it more valuable.
Everyone complains, but they are actually OK.
Does this mean I should put my money in a microtransaction account like League of Legends? I’m only half joking, here.
Be careful. Yes, “Money is whatever two or more people agree it is”, but that doesn’t make it legal tender. I don’t have to accept your “money” as payment for services or a debt, for example. But I do have to accept legal tender, which is why that statement is on our paper money. There was a story once (true) about a man who tried to pay his property tax with a wheel barrow full of pennies in protest. The tax collector didn’t accept it, and didn’t have to, even though it was the correct amount. The man could even have been charged with littering if he didn’t take his pennies away. So be careful that the laugh isn’t on you.
How do you pay taxes if you don’t use the money recognized by the Fed?
Ergo, there will be a nip-in-the-bud crack down on virtual currencies pretty soon.
In the case of the US dollar joining Zimbucks in the failed currency club other currencies that have not been printed to worthlessness may be useful, esp if they are backed by countries that are resource rich and run strong energy and food surpluses.
Canadian dollars are one possibility. The Australian dollar may be another.
Gold coins are a store of value designed to “transfer” wealth from 1 currency regime to it’s replacement, they would be almost worthless as money. Only a tiny % of Americans possess any gold of trade able quantities and making change would be impossible.
Silver dollars or coinage are a more viable alternative but again how many people could transact in such an exchange?
But look on the bright side, we still have a few more years until the fag end of Obama’s second term when the can is most likely to finally detonate.
Get exited, change is coming to America…