Tag: #BIS

The monetary properties of Bitcoin

bitcoin vs gold
bitcoin vs fiat

Bitcoin is a monetary good — a new form of money. As Bitcoin is a money, it must be compared to other monies to consider the comparative advantages of Bitcoin and from that consider further the probabilities of Bitcoin winning ground or not in the competition between monies.

Brief summarization of the monetary properties

Summarization of the monetary properties of Bitcoin compared to precious metals and fiat currencies

As the exhibit above showcases, Bitcoin offers many different distinct and compelling competitive advantages to the alternatives.

These include, but are not limited to:

1. Bitcoin is the first asset in the human history to provide any holder a very sure case of unseizability and censorship- and judgment-resistance for their funds.

◦ Unseizability: With precious metals and fiat currencies, the custodianship is mostly in the hands of trusted custodians that is subject to any intervention by a government or authority.

Bitcoin, with self-custody being orders of magnitude easier than with precious metals and fiat currencies, and access to the corresponding private key of funds being the sole way to access and move funds, no one can seize your bitcoins.

◦ Censorship- and judgment resistance: With precious metals and fiat currencies, the payment clearing for small value transactions can with not much hassle be somewhat censorship resistant if the involved parties are willing to transact in the physical units of precious metals and fiat currencies and to self-custody the funds going forward.

However, with non-small value transactions it is exceedingly inconvenient and costly for transactions of precious metals and fiat currencies to happen in the offline, with physical units and self-custody going forward, leaving the centralized intermediaries as the only option and these are subject to any intervention by a government or authority.

Bitcoin, with the payment clearing involving no centralized intermediaries but instead a decentralized and distributed setup requiring no AML/KYC, the result is that of a the payment clearing process being permissionless, allowing anyone with cryptographic access to funds to move them at their will.

2. Bitcoin provides an inherently apolitical global monetary unit. It is truly border-less, with no recognition of any jurisdictional rules and laws, allowing the jurisdiction of a counterpart in any transaction to be of no relevance.

◦ Fiat currencies are highly political and precious metals are less political than fiat currencies, but still much more political than Bitcoin.

◦ Bitcoin is truly border-less: any bitcoin funds can be accessed anywhere on the planet by having access to information that can even be stored inside a human brain and reliably retrieved at small effort — and, crucially, with no intermediary and no permission required the bitcoin funds can be moved to anywhere in the world with final settlement in the next block.

3. Bitcoin provides scarcity and salability through time characteristics vastly superior to any other monetary options, including fiat currencies and precious metals.

◦ The non-discretionary monetary policy of the bitcoin networking allowing for the asymptotic money supply* of 21 million BTC is built into the literal definition of the protocol. This is a drastic contrast to the arbitrary scarcity of fiat currencies governed by politics.

The scarcity of precious metals is much better than fiat currencies, but Bitcoin with the strictly fixed money supply outperforms any precious metal.

Bitcoin provides any holder a reassurance stronger than any other asset in the world that their ownership stake in the total quantity of Bitcoin on the market will never diluted.

One BTC of 21 million will always be one BTC of 21 million.

◦ Bitcoins are infinitely durable, impossible to counterfeit or dilute, can be stored at no cost and at no degradation.

* By inventing Bitcoin, Satoshi Nakamoto created the first example of a digital good (in this case, monetary good) that is impossible to reproduce ad infinitum, thereby creating the first instance of human history of digital scarcity.

Less talked about it, but perhaps more important, Satoshi Nakamoto with Bitcoin also created the first example of a good being absolute scarce.

Previously, any consideration of scarcity of a good was relative. Any physical good is never absolutely scarce, onlyrelatively scarce when compared to other goods — simply because any limit on a physical goods is a function of the time and human effort put towards producing the good.

Bitcoin, with the asymptotic monetary supply built into the protocol, is therefore the first example of absolute scarcity in a liquid commodity and good that cannot have its fixed quantity of supply increased.

People’s Money
Power to the People
The seed has been planted …
Make it Thrive !!!
Choose
Veritas non Auctoritas …
Choose Wisely

Trilemma of International Finance

Trilemma of International Finance

The relative value of any two curren-
cies—the exchange rate—is determined
through their sale and purchase on the global foreign exchange market. If government policy interferes with this market by changing the relative supply or demand of currencies, the exchange rate is managed.

The trilemma of international finance, is a restriction on government policy that follows immediately from the interaction of exchange rates, monetary policy and international capital flows.

Trilemma of International Finance

The trilemma states that any country can have only two of the following:

  • (1) Unrestricted international capital markets.
  • (2) A managed exchange rate.
  • (3) An independent monetary policy.

If the government wants a managed exchange rate but does not want to interfere
with international capital flows, it must use
monetary policy to accommodate changes
in the demand for its currency in order to
stabilize the exchange rate.

In the extreme, this would take the form of a currency board arrangement, where the domestic currency is fully backed by a foreign currency (as in the case of Hong Kong).

In such a situation, monetary policy can no longer be used for domestic purposes (it is no longer independent).

If a country wishes to maintain control over monetary policy to reduce domestic unemployment or inflation, for example, it must limit trades of its currency in the international capital market (it no longer has free international capital markets).

A country that chooses to have both unrestricted inter-national capital flows and an independent monetary policy can no longer influence its exchange rate and, therefore, cannot have a managed exchange rate.

Pieters and Vivanco (2016), government
attempts to regulate the globally accessible
bitcoin markets are generally unsuccessful,
and, as shown in Pieters (2016), bitcoin exchange rates tend to reflect the
market, not official exchange rates.

Should the flows allowed by bitcoin become big enough, all countries will have, by default, unrestricted international capital markets.

Thus, with bitcoin, (1) unrestricted
international capital markets is chosen by
default.

Therefore, the only remaining policy choice is between (2) managed exchange rates or (3) independent monetary policy.

If the country chooses (1) and (2), it must use reactive monetary policy to achieve the managed exchange rate.

If the country chooses (1) and (3), it must have a floating exchange rate because it has no remaining tools with which to maintain a managed exchange rate.

Ali et al. (2014), the European Central
Bank (2015) and the Bank for International
Settlements (2015) all concur that cryptocur-
rencies may eventually undermine monetary policy.

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Beware of CBDC’s People !!!

CBDC Research & Pilots around the world
StableCoins vs. CBDC’s

The Potential Orwellian Horror of Central Bank Digital Currencies

As citizens around the world are confronted with the severe curtailment of political, economic and cultural freedoms associated with COVID-19 risk mitigation strategies (e.g., lockdowns, mandatory vaccinations and/or vaccine passports), new risks to economic freedom and prosperity are quickly emerging which citizens must be aware of and remain vigilant about.

One of these risks which is developing with rapid pace are Central Bank Digital Currencies (CBDCs). According to a Bank of International Settlements (BIS) 2021 survey:

  • 86% of central banks are actively researching the potential for CBDCs;
  • 60% were experimenting with CBDC associated technology; and
  • 14% were deploying CBDC pilot projects.

The development of CBDCs potentially represents one of the largest changes to modern banking and finance (as well as the global financial system) in decades, even though, as noted by the BIS, the concept was proposed by American economist, James Tobin, in 1987.

Current Structure of Currency

As noted by the International Monetary Fund in 2021, economies around the world currently operate under a “dual monetary system” comprising of:

  • Publicly-issued currency by central banks in the form of physical cash (coins or banknotes) and central bank reserves which constitute legal tender (i.e., form of currency or money which are legally recognised as a means of payment to settle financial obligations such as debts, taxes, contracts, legal fines or damages); and
  • Privately-issued currency by private commercial banks, telecom companies and specialised private payment providers – that is, digital forms of legal tender that are issued and held by non-government financial institutions (e.g., bank deposits or balances held in payment systems such as Paypal or Alipay).

An important distinction of this dual system is that physical cash and central bank reserves are the liabilities of central banks, whereas privately-issued currency is the liabilities of private sector payment providers.

Definition of CBDCs

CBDCs are digital or virtual forms of physical cash represented through an electronic record or digital token that is issued and regulated by a country’s central monetary authority (i.e., its central bank) via a centralised ledger.

CBDCs are centralised, which stand in stark contrast to privately-issued cryptocurrencies (such as Bitcoin) which are decentralised and unregulated.

CBDCs are not uniform and central banks have an immense range of legal, technical, operational and administrative design options to achieve their stated public policy objectives. Importantly, the policy intent of CBDCs will be neither uniform across jurisdictions nor static in time. Instead, they will tend to be a function of a country’s economic, political and social context.

Thus, in assessing whether a proposed CBDC will, in net terms, improve or impair the function of a monetary system and broader economy, each CBDC will require individualised scrutiny and assessment.

NatWest, one of Britain’s largest lenders, is set to appear in court in London to respond to charges that it failed to properly scrutinise a gold-dealing client that deposited £365m ($502m) with the bank—£264m of it in cash.

Last year global banks were hit with $10.4bn in fines for money-laundering violations, an increase of more than 80% on 2019, according to Fenergo, a compliance-software firm. In January Capital One, an American bank, was fined $390m for failing to report thousands of fishy transactions. Danske Bank is still dealing with the fallout of a scandal that erupted in 2018. Over $200bn of potentially dirty money was washed through the Danish lender’s Estonian branch while executives missed or ignored a sea of red flags.

Digital privacy – including financial privacy – is readily available via encrypted communication, and peer-to-peer value transfer solutions. However, the latter quality can scarcely be expected to be implemented in CBDCs by governments eager to control their population.

The continued efforts of central banks to position CBDCs as advancement from analog systems via labels such as ‘Digital Dollar’, requires us to point out the obvious: fiat currencies have been predominantly digitally native for decades, and are stored and moved as bytes. A meaningful departure from the current state of banking technology would necessarily have to include the creation of digital bearer instruments which would not depend on the use of middlemen.

However, this would effectively void the need for demand deposit accounts (“checking accounts”) entirely, as the technical limits of bytes are based in physics. In simple terms: any user would be able to move bytes labelled as fiat currency entry from a yield-bearing state to the recipients yield-bearing account.

With that the ability of financial service providers to extract fees from the movement of bytes would vanish, after all users tend to not put stamps on their emails. This, somewhat obvious conclusion, even made it into several CBDC research papers, and promptly caused the commissioning central banks to halt any development of a CBDC, realizing that fees for payments today comprise on average 30% of commercial bank revenues, these institutions would largely seize to exist.

DO NOT LISTEN for anyone’s opinion on this matter !!!

Opinions are a dime a bucket anyway !!!

Not even mine !!!

DO ALWAYS YOUR OWN DILIGENCE AND RESEARCH !!!

And when the time will come… You shall know the best choice to make for you and future generations to come !!!

It’s actually more about them than us !!!

But we will pave the way for them…

Let’s not make it and Dystopical Orwellian one people !!!

IMHO (In My Honest Opinion) CBDC’s are nothing more than “1984” v 2.0 !!!

But who am I ?¿ but just a leaf in the wind…

Here below are some links that could be a great place to start making your own Research and due diligence !!!

Sharing is caring they say, so here you are people :

https://hackernoon.com/cbdcs-the-folly-of-digital-fiat

https://cointelegraph.com/news/central-bank-digital-currencies-are-dead-in-the-water

https://www.adamseconomics.com/post/the-potential-orwellian-horror-of-central-bank-digital-currencies

https://news.bitcoin.com/why-the-rise-of-the-cbdc-is-bad-for-your-privacy/

https://restoreprivacy.com/cbdc-central-bank-digital-currency-privacy-implications/

https://bitcoinmagazine.com/markets/england-cbdc-propel-bitcoin

https://hackernoon.com/the-problem-that-is-government-money-bn443tts

https://blog.aryze.io/cbdcs-the-good-the-bad-and-the-ugly/

https://www.bis.org/publ/work880.htm

https://www.economist.com/finance-and-economics/2021/04/12/the-war-against-money-laundering-is-being-lost

To be always Updated !!!

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