When bitcoin becomes the global reserve currency, central banks will not disappear, but will have to evolve.
This is an editorial opinion by Jonathan Garner, Bitcoin, finance and economics blogger at The Capital.
If bitcoin really becomes the global reserve currency, that means the days of the US dollar will be over. What would everyday life look like under bitcoin standards? And what does that mean for bitcoin?
It apparently means that it will be priced in bitcoin in the store. In other words, bitcoin will be the unit of account. So, instead of being priced in US dollars around the world, things will be priced in bitcoins. I admit it’s still early and this is probably a long time coming, but it’s still possible even though bitcoin is still quite stable, at least compared to the current global reserve currency of the US dollar.
Contrary to what some people think, my contention is that bitcoin is already a currency. Bitcoin is a medium of exchange, so bitcoin is, in fact, called a “cryptocurrency” rather than a “crypto-store-of-value” or “crypto-gold” (although, bitcoin is definitely one of those things). This is not just science fiction. Bitcoin is already used as a currency in certain places, such as El Salvador. When bitcoin is a global reserve currency, everyone will use bitcoin as a currency in this way. In short, Bitcoin is money. It is a medium of exchange, store of value and unit of account.
The Legacy System In The Bitcoin Standard
The bitcoin standard means that central banks will and must hold bitcoins on their balance sheets. Maybe this means that central banks are no longer needed, but like government agencies or quasi-government agencies, this does not mean that they will disappear. Central banks will hold bitcoin because it will give their country an advantage over other countries that don’t have a central bank. The more free a country is, the stronger it is against other countries. Bitcoin is freedom. Bitcoin is freedom from financial oppression.
The bitcoin standard also means that the bond market will be unnecessary, as outlined in “The Bitcoin Standard,” or at least a lot of it. In bitcoin, the economy will move from a debt economy to a savings economy. The economy will also return to production rather than consumption because consumption and debt do not increase the economy. This means that the current system, which is not according to the bitcoin standard, is very sick, as it is called “Fiat Standard.”
In my estimation, a bitcoin default means the stock market will shrink. With good money, people will have savings, which will change the way they invest. But this does not mean that there will be no economy or economic growth. Again, it just means that people will use their savings more than they currently do. They will rely on savings instead of debt.
Many businesses today will go out of business, but capitalism. Some companies have to go belly up. Companies that are productive and provide value will survive. This includes companies involved in Bitcoin. Bitcoin companies provide value and can pay dividends in bitcoins.
Curing Bubbles
The Bitcoin standard also means we will never have a fiat credit bubble. The current colossal asset bubble system and major crashes are primarily, if not exclusively, related to central banks like the Federal Reserve. An asset bubble is not just some abstract idea. However, bubbles cause a misallocation of resources in the real economy. Bitcoin fixes this. Yes, this means house prices will go down, but they need to go down. Home sellers are not more important than home buyers.
Finally, Bitcoin must eat inflation alive! Consumer prices will fall because they should fall over time. A more productive economy should lower prices over time. Technological deflation is a good thing that should not be feared. Falling consumer prices won’t make me stop drinking my morning coffee because I won’t delay buying down the road.
For some things? yes already. But again, tech deflation looks good. And bad deflation is a product of the current fiat system.
No one is saying that there will be no pain whatsoever in the transition from the US dollar fiat standard to the Bitcoin standard. There is some pain in the process. But, like practice, it will pay off in the end. The elite in society will use Bitcoin because it will be good. The future is the bitcoin standard.
This is a guest post by Jonathan Garner. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.