FED Board President Does not Understand Bitcoin or the Nature of Trust – Featured Bitcoin News


FED Board President Does not Understand Bitcoin or the Nature of Trust

A recent editorial published by Bloomberg on April 4 had quotes from the Philadelphia Federal Reserve’s Patrick Harker concerning digital currencies. In the article, he demonstrates his ignorance about bitcoin’s volatility, the future of banks, and the concept of trust. 

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FED Board President Does not Understand Bitcoin or the Nature of TrustThe article’s author quotes Harker, saying that digital currencies will not replace banks. Harker said, “Digital currency won’t topple traditional, government-sanctioned money from its central role in the economy in the foreseeable future.”

Harker believes digital currencies will not delegitimize banking and the banking system as it stands. The article emphasized a dollar is a dollar, and people know the dollar will retain its value. Harker believes digital currencies cannot possess the same level of trust as a result of their volatility.

“A fiat currency like that in the United States, which is issued by a central bank in a secure and stable economy, works because we trust it,” explained Harker. “A dollar is a dollar. We all agree that it is and there’s not much that can undermine that faith. We experience inflation, sure, but not often in dramatic or abrupt ways.”

On the other hand, one of the things you’ll see with digital currency is how wildly the value swings. The question is will there ever be a digital currency that is stable enough to become as widely used as a government one.

One perspective on Trust and Stability in Digital Money

FED Board President Does not Understand Bitcoin or the Nature of TrustHarker’s argument that private, digital monies can never have trust because of their instability is misleading.

What Harker does not want people to know is governments are not the only factors that provide a currency with stability. It is true central planners can stabilize money by writing coercive laws, but a currency can also stabilize as a result of higher demand on a market.

The volatility experienced by bitcoin and other cryptocurrencies do not occur because people don’t “trust” them. The volatility occurs because of lack of adoption and usage. It means these currencies are still in what economists refer to as “price discovery phase.” In other words, the fact there is not much liquidity in the market causes the price to fluctuate violently.

However, this aforesaid view represents a traditional economic perspective. There is another, deeper idea to consider: maybe money stability is a myth.

Bitcoin Stability as a Necessary Pipe Dream

According to Daniel Krawisz, cryptocurrencies can be trusted FED Board President Does not Understand Bitcoin or the Nature of Trustwithout needing stability. In a fascinating article on nakamotoinstitute.org, Krawisz makes the case that Bitcoin could perform as a legitimate money while being “volatile.” Krawisz says that nothing in the universe is inherently “stable.”

He said:

Stability is about as real as the fountain of youth, love potions, or perpetual motion machines. It is not to be found anywhere in the universe but for some reason people act as if such a thing could somehow exist. Prices reflect the availabilities of things that we actually can have, so maybe we should all stop searching for chimera of stability and accept that if the world is unstable, than prices ought to be unstable too. Otherwise prices could not serve the function of enabling people to coordinate the allocation of scarce resources.

Krawisz makes a valid point. He provides the stimulating fact that politicians like Harker merely invite the gullible masses to accept that stability is necessary for a currency (or prices).

It makes sense if one considers the perspective of a petty tyrant or control freak. Politicians are constantly trying to “stabilize” and control everything. However, the stability they create through law or “monetary policy” is artificial. In reality, markets constantly shift. The universe is in an ongoing state of flux and transformation.

Indeed, we saw the artificial nature of government controls when the monetary bubble collapsed in 2007, which likely happened as a result of monetary controls and policies instituted by the Federal Reserve. In other words, government’s attempt to stabilize the market only backfired. Their idea that stability prevents problems was shown to be wrong.

In the end, stability may be a myth because it implies a currency does not need to be stabilized. Stability may not even matter when it comes to a cryptocurrency like bitcoin.

Conclusion: Harker is Wrong; Trust in the Eye of the Beholder

FED Board President Does not Understand Bitcoin or the Nature of TrustVolatility may just an inherent feature of money in a digitized, free market environment. If this is the case, Harker’s argument that digital money will not replace fiat currency because people do not trust it is doomed to failure.

Cryptocurrencies—whether bitcoin or an altcoin—will inevitably grow to replace fiat currencies if people use them. Additionally, what we have learned is that “stability” is not necessarily indicative of trust. If people are forced to use a currency, then “trust” is artificial.

Real trust is generated through growing use of a currency. It is also generated through the knowledge that central planners will not manipulate their money to the point of devaluing it.

In this sense, Harker’s last words, “No matter what happens in the world of fintech, you still need a trusted broker of money,” ring false on all levels.

He has no idea what “trust” means; and ironically, does not realize that many no longer trust the banking empire he supports. The reality is that trust is in the eye of the beholder, and not signaled only whenever a bureaucrat waves a magic wand.

Do you think Bitcoin or other cryptocurrencies will eventually overtake the fiat empire? 

Images courtesy of Shutterstock 

Tags in this story
Bitcoin, Bloomberg, Bloomberg Markets, Cryptocurrency, Currency, Dollar, Fed, Fiat, trust, Value

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Sterlin Lujan

Sterlin Lujan is a journalist, editor, speaker, anarchist, and essayist. He has been involved with cryptocurrency and Bitcoin since 2012. Sterlin is especially interested in the intersection of psychology and cryptography. He has written on behavioral economics in regards to innovative technology, and was one of the first to write about the emerging field of cryptopsychology on bitcoin.com.

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