European Central Bank Casts Wary Eye Toward Bitcoin

An anonymous reader writes "Erik Voorhees blogs for bitinstant.com: 'On Oct 29, 2012, the European Central Bank (ECB) released an official (and very nicely prepared) report called "Virtual Currency Schemes (PDF)." The 55-page report looks at several facets of what virtual currencies are, how they're being used, and what they can do. As it happens, the term "Bitcoin" appears 183 times. In fact, roughly a quarter of the whole report is specifically dedicated to Bitcoin and it's probably a safe assumption that Bitcoin's growth over the past year was the catalyst for producing this study in the first place. The report from the ECB concludes, in part: Virtual currencies fall within central banks' responsibility due to their characteristics, and Virtual currencies could have a "negative impact on the reputation of central banks."' Could this be the first step toward regulation of the digital currency?"

Comments

Cast in a negative light, obviously

[durrr]

Virtual currencies could have a "negative impact on the reputation of central banks."'

By showing that the legion of morons and regulation and other peripheral bullshit associated with central banks are entirely unecessary and even counterproductive. Thus rendering, among others: the person that wrote the study potentially useless and unemployed.

Re:Cast in a negative light, obviously

[Twinbee]

I see banks, and their multiple saving schemes, and different types of credit/debit card, and cheque books, and different types of notes, and tedious forms to fill in, and different currencies with all the complicated mess that entails when converting, and I think how nice it would be to scrap it all and start again from scratch, done properly, with almost total automation, and no UWS (Unnecessary Work Syndrome).

That would save billions or trillions of dollars per year probably.

Re:Cast in a negative light, obviously

[Twinbee]

And put a lot of people out of a job, don't forget that.

Only in the same way that the number of professional glass makers would be reduced if vandals stopped breaking windows.

Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

I disagree. We need to keep or gain productivity, sure. But that's what counts, not the number of workers doing said work. And no, I'm not some hardcore capitalist, as I think a basic income for everyone would be a good idea (unconditional money on top of any regular work income). Even the rich are happier when the poor have a relatively decent standard of living.

Re:Cast in a negative light, obviously

[jcr]

And put a lot of people out of a job, don't forget that.

That's a good thing. Any job that can be eliminated through technological advancement makes people available for more important work.

-jcr

Re:Cast in a negative light, obviously

[Znork]

Indeed, as the ultimate goal of humans is to work as much as possible. Almost everyone on their death bed regrets not having worked more. Or maybe not.

We're rapidly leaving the age of scarcity. Within years whole swaths of current human fields of labour will be rendered obsolete, even now Chinese labour is getting replaced by robots, 3d printing will probably do a lot more in and we're on the cusp of losing vehicle piloting to automation which will wipe out large parts of the transportation industry. Increased demand is simply fulfilled by more automated processes, it doesn't create more need for labour to anywhere near the extent it used to.

Ultimately we will have a choice. Either keep the few employed in productive necessary labour, while directly and indirectly taxing them like hell to support the rest of the population in meaningless make-work or outright welfare. Or we can cut working hours/days until equilibrium is restored and more equitable distribution of labour is achieved.

Personally I prefer the latter. I can live with having more free time, but both working my ass off to keep everyone else fed or, to paraphrase Keynes, doing make-work by burying money and digging it up again just to keep 'money' flowing aren't among the more palatable ways of living life.

Wonderful

[skipkent]

They're both in the business of creating money out of thin air, so of course they'd see a problem with it.

first step to regulation of digital currency?

[nurb432]

No, its the first step toward eradication of it. The freedom of being able to buy something anonymously is soon coming to an end. Not only does it threaten banks and their empire, but governments too.

Einen moment, bitte.

[istvaan]

Correct me if I'm wrong, but isn't the whole premise of bitcoin to be a currency that has no central authority?
That is, it's a currency designed from the ground up to exist without and outside of central regulation and interference.
I suspect that, if regulators attempt to get their hands on it somehow it will consider those attempts to be damage and, like the Internet, route around them.

Re:Einen moment, bitte.

[durrr]

People legally dodging large amounts of tax?
You mean like the entire range of Fortune 500 companies and the associated persons?

Good luck with that

[stevegee58]

I'm not sure how a decentralized, electronic currency can be "regulated" at all.

Re:Good luck with that

[betterunixthanunix]

Well, if you think the government is not going to protect you, I hope you live in a tactically advantageous location, have a stockpile of ammunition and guns, and a magic source of food. If not, then tell me this: what stops me and a group of my friends from coming to your home, killing you, and claiming your property as our own?

See, if we have a dispute like this -- one in which I claim that I am actually the rightful owner of your things -- we can either ask the court (i.e. government) to settle the dispute, or we can let strength settle the dispute. In some places, where the courts are not respected, that is how disputes are settled, and people kill each other all the time (which actually leads to more disputes, and more killing). That is why we have courts, laws, and governments: so that we do not kill each other over disputes.

Bitcoin is doomed because of programmed deflation

[MatthiasF]

Not many people realize why central banks exist, but their primary role to to assure a consistent monetary policy, specifically one encouraging minor inflation (1-4%). Why is that important and necessary? Because economies run best at a steady, expected pace. When inflation grows out of control, habits change with spending and investing (people buy less long term investments and more short-term riskier ones, or consumers horde goods) and we know from history that when an economy goes from inflation to deflation there is massive chaos not only in the markets but with consumer spending (as people sell off short-term investments for long term or consumers decide to hold off buying things knowing the cost will go down).

So, economic systems need a slow upward progression for currency to assure the economy to be healthy and Bitcoin offers that with the algorithmic generation but if the coins are generated too quickly (by some advance in computer processing), horded by a few people or other circumstances that reduce the liquidity of the currency (like the massive exchange thefts we've seen), the currency itself will begin to shift from the programmed inflation to deflation.

What's more is the fact that Bitcoin has a limit to the number of coins, which means when it hits that limit and the price of an apple goes from 1 coin to 0.1 coin, you just created programmed deflation and the behaviors of the users of the currency will change causing chaos against other world currencies that are targeting gradual inflation.

19th Century

[TubeSteak]

But beyond any market-level incidents caused by a new currency, itâ(TM)s important to understand that virtual currencies can actually damage the faith people put into central banksâ"and fiat currenciesâ"as institutions themselves. People are taught that central banks are necessary to manage money supplies (even though the US boomed through the entire 19th century, most of which didnâ(TM)t have a central bank). But, if it is demonstrated that money can work without central planning, and maybe even work better, then indeed the faith in central banks will be undermined, and with good reason.

Why do we have centralized banking (aka the Federal Reserve System) in the USA?
https://en.wikipedia.org/wiki/The_Panic_of_1907

And you know what the solution to that panic was?
A bunch of rich guys injected liquidity into the system because there was no central bank to do so.
100 years later, when confronted with the same market situation, our central bank injected liquidity into the system and kept things from getting worse.
Imagine that! Unelected ivory tower banking eggheads made the exact same move as laissez-faire capitalist J.P. Morgan and friends.

The issues surrounding non-centralized banking isn't whether money works better or worse,
it's about what happens during the edge cases, when shit hits the fan.