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Potentially unpopular opinion: cryptocurrencies haven't been widely banned because they aren't actually all that impactful. The things you can do with crypto that governments don't like (harder to trace transactions, circumvention of asset transfer laws, etc.) have always been possible. If the government wanted to stop criminal transactions, banning cash would be way more impactful than banning Bitcoin. Furthermore, the decentralized nature of a lot of cryptocurrencies is not a good thing for a real currency. Being able to manage the money supply and enforce monetary policy is important. While some governments go bonkers and cause hyperinflation, most do a good job of managing the stability of their currency.

The author's latter explanation, that governments don't really care, is the most compelling. The only ones that do are ones that enforce onerous asset transfer laws (e.g. PRC).




Is it really that important to manage the money supply directly? Sure we had fluctuations in value when the US was on the gold standard, but was it really that bad?

I'm not saying we should go back to gold, I'm merely pointing out that a decentralized system can work just fine, it just needs to be reasonable stable. Bitcoin isn't stable because most of the coin owners are speculators and the price fluctuates with market sentiment.

If a cryptocurrency can be made popular for actual transactions but not get overtaken by investors, I think it'll have a solid chance as an alternative currency. I don't know the solution here, and perhaps crypto currency isn't the right tool, but I'm totally down with alternative currencies that don't rely on centralized monetary policy.


The gold standard was worse - there's a reason why we abandoned it. And regardless, Bitcoin is fundamentally a lot less stable than the gold standard. Gold production can be managed. Countries hold vast reserves of gold to adjust the money supply when needed. It's harder to mange the supply of gold than paper money that isn't pegged on any commodity, but it's possible. It is subject to manipulation, though, and the French exchanging large amounts of dollars for the stated gold value prompted the US to abandon it.

Bitcoin is a whole different story. Unless there's a mechanism to easily change the amount of bitcoin in circulation, there's going to be perpetual deflation. The thing that a lot of gold standard and bitcoin proponents don't realize (not saying you're among these people) is that the total amount of wealth in the world isn't fixed. As countries industrialize, new more goods are produced, and services are available the global amount of wealth rises. Simply put, there's a growing amount of stuff in the world that can be bought and sold. The maximum number of bitcoins in circulation is fixed at 21 million BTC, so once that number is reached the cost of a bitcoin will (in theory) perpetually deflate.

TL;DR: A fixed supply of currency doesn't guarantee zero inflation. It guarantees negative inflation (AKA deflation) as the total pool of wealth rises. Deflation is widely considered to be worse than inflation, reasons for which we can discuss if so desired.


I'm a bit late in replying, so I understand if you don't reply.

I'm going to ignore the specific arguments about the gold standard and cryptocurrency. It's certainly relevant to the discussion, but I'd like to avoid getting caught in the weeds.

What exactly is bad about deflation? All that's changing is the number printed on labels for buying goods. Instead of prices "going up", prices "go down". Inflation encourages spending and investing, deflation encourages saving, and monetary policy seems to always put us in the "inflation" end of the spectrum.

The real problem that needs to be addressed is rapid fluctuations, and from what I can tell, central banking causes the boom/bust cycle we're seeing instead of preventing it. Prices for goods at the store may remain constant, but valuations in the market certainly don't.

So my question is, would it really be so bad to have inflation instead of deflation by having less government involvement in the market? We can even have multiple currencies if you don't want to put your eggs in the same basket (gold, crypto, some other commodity)


> Deflation is widely considered to be worse than inflation, reasons for which we can discuss if so desired.

I'd love to discuss it. Questions:

Why is a 3% inflation rate desirable yet 15% is catastrophic?

Why is the 2-3% inflation goal set in stone and unable to be ever changed?

Many developed countries keep targeting this rate despite being unable to achieve it. Is someone going to mention the emperors clothing eventually?

Why is deflation itself bad? Why is cheaper food, shelter and consumer items a bad thing for society as a whole? People save more, consider their purchases more carefully and tend to be more cautious about their money. Some examples of deflationary products are computer hardware and new cars. People tend to take these purchasing decisions quite seriously and research far more than not, is that a bad thing?


15% was not catastrophic for those of us old enough to have lived through rates that high. Just different. Unless the devaluation of a currency actually matters to you. My country has had a currency devaluing for well over 100 years, in high and low inflation, so the point is mostly moot. Wage rises were aimed at say 5% ahead of inflation as anything smaller would instantly get eaten. Mortgages inflated down to pocket change, so after ten years of mortgage the percentage of your pay that went on the mortgage was so low it felt like housing became essentially free. You didn't keep £20k in a savings account as inflation would chew into it quickly, despite the account maybe paying 12%.

Deflation means everyone is putting off all possible spending. Why buy that car when it'll be cheaper next month? As companies react to lower demand they lay people off, which increases unemployment and adding more deflationary pressure and reduces demand further. When enough companies have laid enough people off few are going to risk starting a company, as all the money in the economy is under mattresses waiting for things to get cheaper.


Deflation doesn't mean cheaper food and shelter. Remember, deflation reduces the dollar value of labor, too. But the dollar-value of all other goods and services decreased tenfold as well so in the end nothing has changed. However, there's one big factor you're missing: debt.

Simply put, inflation favors debtors while inflation favors creditors. Imagine you bought your house with bitcoin, and took out a mortgage of 500 bitcoins to pay for said house, back when bitcoin was $500. Total debt, $250k. Now, the price of bitcoin is over $6,000. Did your loan magically shrink from 500 bitcoin to ~42 bitcoin? No, your loan is still 500 bitcoin. So your $250k mortgage has become a $3 million mortgage.

So inflation hurts people that loan out more money than they owe: mostly banks and rich people. Deflation hurts people that owe more money than the loan out: poor and middle class people. Benefiting the wealthy at the expense of the poor is broadly considered to be immoral. An ideal world might see zero inflation and zero deflation, but predictions are always off so the Fed plays it safe and targets ~2% inflation.


> Deflation doesn't mean cheaper food and shelter.

It's the literal definition of it.

https://seekingalpha.com/article/4085479-food-deflation-hurt...

> So inflation hurts people that loan out more money than they owe: mostly banks and rich people.

General controlled inflation doesn't hurt banks at all, they simply put their margin on top and that's the interest rate. In fact people are far more likely to use their services in a high inflationary environment.

"Rich people" and large corporations are far more indebted than the average person, they disproportionally benefit compared to a simple wage earner purchasing a house or running a small business.

Also the headline inflation rate and individual sectors are two entirely different beasts. If wage inflation moves nowhere but overall inflation goes up it's absurd to claim this benefits the poor and workers. It only encourages more people to borrow and speculate on assets in a feedback loop.

Inflation is not some magical gift from the financial heavens bestowed upon the masses to balance out society, in fact it's the opposite.


> Is it really that important to manage the money supply directly?

Perhaps this is the main problem with the way these so called cryptocurrencies are marketed. Cryptocurrencies such as bitcoin are not nor they ever were close to be money. At best they are tokens used in currency transactions. In that sense they are used as some drug communities use detergent packages. So, it doesn't really matter if the current supply of tokens isn't managed becau,se although the price of each token may fluctuate, its main use is enabling decentralized transactions across the internet, just like junkies exchange Tide bottles for a dose.




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