Opinion: Czech National Bank Says Banks Shouldn’t Fear Bitcoin, but Misses Its Point
In a piece titled “Don’t be afraid of bitcoin,” the Czech National Bank states that bitcoin and other cryptocurrencies aren’t a threat to the current monetary system due to price volatility. The text starts by exemplifying how popular digital currencies already are in the country, and uses a café in Prague that accepts bitcoin payments as an example.
Then it adds that digital currency enthusiasts often question whether institutions such as the national bank and other banks should be afraid of bitcoin and its power to change the current financial system.
Bitcoin is “Negligible in Terms of Size and Scope”
According to the Czech National Bank’s article, the first reason banks shouldn’t fear bitcoin and other cryptocurrencies is their “negligible” size and scope. It states:
(…)electronic transactions using bitcoin worldwide amount to only 16% of the electronic transactions conducted in the Czech koruna, a currency used by just 10.5m people.
Moreover, the piece then adds that bitcoin’s constantly changing price affects purchasing power, adding that if a currency loses value people want to get rid of it, but if it gains value people want to hoard it.
Then, it takes on bitcoin’s fixed supply claiming it makes the cryptocurrency inherently volatile. Being inherently volatile, as such, affects people’s purchasing power and presumably makes people either want to get rid of it, or hoard it.
The article reads:
This is the antithesis of our elastic money system, which is based on the principle that to keep the purchasing power of money relatively constant the amount of money has to change flexibly over time.
Finally, the document points out that the monetary policy of the 19th and 20th centuries taught us that price stability matters, and that people take it for granted. It states that people can use a currency without even thinking about why they trust it, and that price stability is the most beneficial feature of money.
The Czech National Bank justifies the actions central bankers took during and after the 2008 financial crisis as a way to maintain price stability, that “sometimes requires unorthodox policies.”
Notably, the article states that people are too concerned about the amount of money being created, while having no idea about the size of the current money supply. The author claims that when he asks well-educated audiences, he gets wildly wrong estimates for the current money supply, but precise ones for the inflation rate. The author concludes:
Price stability, not money supply, matters. As long as central bankers abide by this principle, there is no reason to fear that our existing monetary system will be replaced by a fixed-money alternative.
Czech National Bank Misses the Point
The Czech National Bank, although correct on the importance of price stability for everyday use, misses the point on why bitcoin is the future of money. The point is that people need to be in charge of their own money, without depending on a centralized authority to decide what happens to it.
We currently have a real-world example of why bitcoin is so imporant: Venezuela. As previously covered in another piece, government policies led to hyperinflation, and it got to the point people could barely afford food.
Here’s the then-shared graph of Venezuela’s hyperinflation from TradingEconomics.com :
This is just an example of how fiat currencies, controlled by governments, can lose their worth, as at any moment another catastrophic event can make the value of these currencies plummet. Central banks’ policies often lead to malinvestments , which essentially wreck the economy and lead to further financial problems.
Here’s a humorous way to put what can happen to our money while using a currency we can “use without thinking about why we trust”:
Bitcoin essentially gives people the freedom to do what they want with their own money, it allows them to “be their own bank” without having to rely on a central institution that controls our money and can one day say: “aaaaaand it’s gone” without our input.
The cryptocurrency, the people’s money, also solves the Byzantine’s Generals’ Problem as trust isn’t a factor for it to work, and no government or any other organization can shut it down, block it, or control it. Bitcoin takes power away from the government and gives it to the people – that is why organizations such as banks should be afraid.
Featured image from Shutterstock.
