October 31, 2012
European Central Bank Report On Bitcoin:
It’s Likely To Grow And It Poses Risks
The European Central Bank (ECB) recently issued a report on digital currencies.
The report largely revolves around Bitcoins and Linden Dollars, and provides a review of the currencies from the perspective of central bankers. Unsurprisingly, they found the currencies to pose “risks” that potentially require future “regulation.”
Here’s a few of the highlights that deserve some commentary:
Obviously these are not a risks to people like you and me, but they are risks to central bankers, state actors and others who derive their income from forcibly imposed central bank monopoly money interest rate manipulation.
The paragraphs are rather startling in their explicitness.
They are essentially saying that if enough people transacted in Bitcoins instead of dollars or Euros, the central banks would lose control over their ability to manipulate interest rates. Indeed, the entire point of Bitcoin is to provide a currency that cannot be manipulated to suit the whims of commercial banks, central bankers and politicians.
Of course, the question of why central bankers should have such power in the first place is never addressed in the report. Central bankers ARE central planners - straight out of the Soviet Union.
They have the power to direct massive swaths of resources throughout the economies under their control by manipulating interest rates to suit their whims. In fact, central banks were so important to communism that Karl Marx enshrined them as a core plank of the Communist Manifesto.
Central bank manipulation of interest rates has absolutely nothing to do with free market economics, and everything to do with central planning and control by a power elite.
Central banks manipulate interest rates by essentially printing funny money into existence.
Professor Roger Garrison details the deleterious effects of central bank manipulation of interest rates on economies in this lecture:
Is it surprising that central bankers would be aghast at a currency that they couldn’t print into existence?
The report goes on to list some more “problems” associated with virtual currencies from the perspective of the central planners:
I find this section to be hilarious.
First off, it’s pretty much a bucket of lies as far as Bitcoin is concerned, although some of these criticisms may apply to other forms of virtual currencies. The fact that they make no distinction between various types of virtual currencies with their criticisms speaks volumes about their motives.
For starters, the finality and irrevocability of Bitcoin transactions is 100% assured by the cryptographic algorithms and software architecture the network uses. It is impossible to have chargebacks with Bitcoin.
They claim that virtual currencies cannot be considered to be safe money because their acceptability to others as a means of payment cannot be ensured, while at the same time the U.S. central bank has doubled the monetary base in less than a year, pushed interest rates down to zero and bought up so many government bonds with funny money that a third of every dollar the U.S. state spends is based on the issuance of new debt.
And let’s not forget China, India, Iran and Russia using gold to conduct trade with each other, bypassing our petrodollar hegemony entirely.
It’s a joke for them to argue that central bank issued money is somehow safer than currencies like Bitcoin, which cannot be subjected to any such insane manipulations by sociopathic bankers and politicians.
The U.S. and Euro zone are not immune from the economic laws of the universe. If they continue debasing their money the way they have been, eventually the rest of the world will get fed up with their nonsense and stop taking their funny money in exchange for goods and services.
Further, this section presents a bit of a red herring. They are claiming that virtual currencies rely on the creditworthiness of the issuer of the settlement asset (virtual currency), which is ridiculous, at least as far as Bitcoin is concerned. Bitcoin, like gold, has no counterparty risk.
The report concludes:
In other words, if there is a major incident, like a Bitcoin exchange being hacked and robbed, the bankers are concerned this might tarnish their image, and therefore, they should seek to regulate Bitcoin based on this possible misperception by the public that somehow the central banks weren’t doing their job.
Seriously? They consider this to be a valid reason as to why they should “regulate” a private currency market?
None of the criticisms of virtual currencies in the report surprised me in the slightest. As you can see, they aren’t concerned with anything remotely related to free market economics, property rights, free trade, etc..
The only thing they are concerned about is a loss of their own power, which leads them to suggest that “regulation” of virtual currencies by central banks may be necessary in the future.
I hope you can see that “regulations” have nothing to do with your best interest, but rather they always are geared toward the interest of those in power.
The ECB cites Jon Matonis’ article entitled “Why are Libertarians Against Bitcoin?” in which Matonis heavily cites my work. It’s nice to know that the people at the ECB are taking Matonis and I seriously.