A Research Consultant at the Bank of Canada has authored a paper that examines the implications of a Bitcoin standard on the global economy and on the roles of central banks.
The paper, A Bitcoin Standard: Lessons from the Gold Standard, was written by Warren Weber, who is a visiting scholar at the Federal Reserve Bank of Australia and a professor at the University of South Carolina.
In his paper, Weber posits a hypothetical scenario where Bitcoin backs all monetary systems in the world, and tries to draw parallels to what transpired when the gold standard was in full force between 1880-1913.
The Abstract reads:
“The paper argues that because there would be virtually no arbitrage costs for international transaction, countries could not follow independent interest rate policies under the Bitcoin standard.”
While the paper states that central banks would not be in charge of setting interest rate under a Bitcoin standard, Weber makes the case that they would still have the capability to act as lender of last resort in an economic downturn:
“The ability of a monetary authority to act as lender of last resort under either the gold or Bitcoin standard is limited. This is in contrast with the almost unlimited ability of central banks to act as lenders of last resort under a at monetary standard.”
The paper concludes that a Bitcoin standard can be beneficial due to the predictable rate of minting of the digital currency, unlike the hard-to-predict factors surrounding the mining of gold. However, Weber definitively states that central banks will never allow a Bitcoin standard in the first place, as that would remove the ability of governments to implement interest rate policies.
“Nonetheless, in my opinion it is unlikely that the Bitcoin standard will come into existence, because governments and central bank will take action to prevent it.”
Furthermore, Weber postulates that even if a Bitcoin standard was somehow allowed to come into existence, it would not last very long, “The payments world is changing so rapidly that there will be a technological innovation that provides a potential medium of exchange with the same or greater benefits of Bitcoin or with lower costs.“ writes Weber.
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