Jake's View | The world seems to think ‘bitcoin bad’ – but it’s not the only currency that needs to settle down
With the gold standard gone the value of any currency depends entirely on whether people have confidence in it and a growing number of people have confidence in the bitcoin
“Bitcoin or other digital currencies do not require holders to trade under their real name, which allows them to be used for money-laundering activities. Bitcoin and other digital currencies are considered commodities... However, investors need to understand that these commodities have no monetary backing.”
- Norman Chan Tak-lam, HKMA chief executive, SCMP business, Sept. 19
Let’s deal first with this business about how bitcoin has no monetary backing. Neither in truth does the Hong Kong dollar.
Yes, we can say that our pegged currency is formally backed at HK$7.80 to US$1. But what backs the US dollar?
Your answer is that since 1973, when the US went completely off the gold standard, the value of the US dollar bill in your wallet has been based only on your confidence that the US Treasury will not print too many of them. This confidence in restraint also happens to be exactly what supports the bitcoin.
The difference is that mining bitcoin is a slow and costly business of adding the right numbers to the bitcoin blockchain, while the US Treasury can fire up its printing presses and flood you with dollar bills at will.