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.
Bitcoin thus has one big advantage over government issued currencies. It is proof against hyperinflation of the sort that destroyed confidence in the Deutschmark in the 1920s. It is also much better as a currency of transaction than the other traditional refuge, gold.
This puts it simplistically but it is still true. 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.
Yes, I concede that its investment value is still dubious when it fluctuates as much against the US dollar as it has done recently. But these are times of silly valuations in all financial assets. Bitcoin is not the only one that needs to settle down.
Thus let me direct a rude noise the way of JP Morgan boss Jamie Dimon, who said last week that bitcoin is a fraud. It is not by far the only one in the marketplace then, Jamie. Have you checked your own wardrobe?
And now Norman’s remarks on money laundering. People who frown on it always cite drug money and terrorist finance as reasons that it is so bad.
From all appearances, however, the drug lords easily find their way around money laundering barriers while terrorist finance is a few thousand dollars at a time, little of which ever touches the banking system where money laundering laws operate.
The real underlying complaint is tax evasion. The loudest screams come from governments deprived of what they consider their legitimate grab.
Our own taxman, however, has no complaint. His collections are growing strongly and our government is running a record fiscal surplus. It is only on behalf of foreigners that we fulminate so loudly against money laundering.
What I have in mind here is the United States death machine, US$850 billion a year of military expenditure, payments to veterans and the related share of fiscal debt service.
The rest of the US national budget is largely fixed in stone as legally mandated social and economic help. But the expenditure on the death machine is not fixed.
No law requires that the US inflict widespread misery in the Middle East through constant military adventures there. No law says that more sabre rattling is the only way to deal with a paranoid buffoon in North Korea, whose paranoia is only fed by annual US sabre rattling exercises on his borders.
But one good way of stopping it would be to starve this insatiable death machine of its funding. If this is what money laundering can help to do, even in a small way, well, I cannot say I find it all such a bad thing. Chalk one up for bitcoin then.