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The Fed and Bitcoin

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Rob Wile posted an interview on Business Insider today with St. Louis Fed vice president and director of research, David Andolfatto, about his change in view about Bitcoin. He is favorable after he reviewed the basic concept of Bitcoin in the sense that it is a viable cryptocurrency to watch in its use and progress.

At first Andolfatto agreed with economist Paul Krugman and the comparison to gold and mining which was not needed in another form. Krugman simply states his belief that another fiat currency is not needed, Bitcoin like gold was limited in supply and could lead to deflation and economic depression, so it is not viable as a monetary currency.

Andolfatto feels, however, that ‘miners’ are mislabeled when in fact they are performing a record keeping service that is critical to any money system. Bitcoin functions as a cryptocurrency and is no different than that other forms have been used as a monetary exchange item of value.

Bitcoin suffers the same defect as gold which is the volatility. People should rethink that there have been competing currencies in the world. Competing with the US dollar as a monetary exchange for the monetary system will not happen for Bitcoin. On that point both Krugman and Andolfatto concur. Competing cryptocurrencies will continue to occur and different usage will appear to be utilized for a system of exchange.

Andolfatto does not think that Bitcoin is in its existence a threat. That threat will continue to discipline the Fed and other central banks to continue to run responsible policies. Bitcoin presents a good competitor in that sense.

The Fed has managed the US dollar supply and inflation despite imperfect times and bugs. Bitcoin is still in infantile stage and is working through issues. As it evolves it will deal with the issues of supply and demand depending upon how society chooses to employ use of Bitcoin.

The Economist presented an article in this week’s edition with a different premise on Bitcoin in that it is deflationary. Since money is not a natural thing but it is rather a technology that society invents or fabricates to meet certain needs. Because of the limited and capped supply of Bitcoin it becomes deflationary and does not meet society’s needs at some point.

All of the discussions consider it a ‘free market’ piece. Andolfatto’s presentation to the St. Louis Fed board can be viewed on the Business Insider link. Bitcoin will continue to be discussed and it will evolve throughout the world. BitLegal is a website that provides information on countries where Bitcoin is in exchange in some format through the Bitcoin exchanges.

To find more information about Bitcoin view the list below in Author’s suggestions and the video atop this article.

Twitter: Victoria Wagner@victoriaross888

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