Here are some quick comments on a recent article from The Economist:
In the article the unnamed author makes the following statement:
“Attracting enough users to smooth such volatility seems unlikely in the foreseeable future. Established fiat currencies—ones where bills and coins, or their digital versions, get their value by dint of regulation or law—are underwritten by the state which is, in principle at least, answerable to its citizens. Bitcoin, by contrast, is a community currency that requires self-policing on the part of its users. Most people would rather devolve this sort of responsibility to the authorities.”
Yes, many people prefer to shirk responsibility and succumb to what Rose Wilder Lane described as “the pagan faith in external authority”. We’ve seen the results of abdicating personal responsibility. You cannot have liberty without personal responsibility.
The article also goes on to state:
Moreover, Bitcoin may be useful for trading goods and services but it does not yet allow borrowing or lending. In the physical world this happens through financial intermediaries: you put money in a bank, and someone else borrows it. A virtual Bitcoin bank might spring up but that would create problems of its own. How would a saver be assured that he would get his money back when he wants? If a bank got into trouble, who would be the lender of last resort? The usual answer is a central bank: exactly what Bitcoin is trying to avoid. Bitcoin is technically sophisticated. As a monetary system, it looks primitive.
The Economist fails to acknowledge the “moral hazard” built into the current banking system. This moral hazard is the primary cause of the recent banking crises and the many crises that preceded it. This is the same system where depositors fail to do their “due diligence” on the banks that they entrust their money to because they are lulled into the false sense of security of FDIC insurance. In turn, the banks fail to be wise stewards of that money because they know they are backed up by the central bank and that losses will be socialized. This is the system which The Economist is advocating for bitcoin.
What The Economist faults as a weakness of bitcoin is actually what gives bitcoin one of its greatest strengths. If a depositor knew that his deposits were not guaranteed he would be a little more careful in choosing who he entrusts them to. If the banks were not backed up by the central bank (and the duped taxpayer) they would be much more prudent with their lending policies. There are no risk-free investments. Economist, you can do better than this.