The president of the St. Louis Federal Reserve, James Bullard, spoke at the opening day of Consensus 2018 in NYC where he had some mixed reviews of cryptocurrencies (his talk begins at minute 55:00 in the video).
His talk combined the history of privately issued money, monetary theory, and debates that exist within the economics of currency. He believes that cryptocurrencies are “creating a drift to non-uniform currency” within the United States and highlights that the “literature says that publicly issued money and the privately issued currency can coexist as an equilibrium”. He added that non-uniform currencies were historically not popular and eventually replaced, citing pre-civil war era in the United States. He also referenced the current standard of non-uniform international currencies, but added that those currencies typically have relatively high and unpopular volatility.
Bullard added that most modern currencies are backed by the monetary policy of the issuing government, while cryptocurrencies have their “monetary policy” ingrained in their code that is publicly available. He noted that even though many cryptocurrencies have supply limits for a specific coin, there is still the possibility that the coin will “bifurcate, creating two fixed volumes of coins” and indirectly affect the price level in the crypto economy and the “future value of those coins”. Throughout his speech he highlighted that the chief task of currencies is to facilitate trade that would not have occurred otherwise. He also mentioned that the “core issue behind all currencies” is the “credibility of promises on limits on future issuance.”
He summarized the ideas of Milton Friedman and Friedrich Hayek on competing public and private currencies, along with Robert Mundell whom is viewed as the father of the Euro, which is a support for unification of currencies.
Debates about currency competition
Since Bullard brought up both Hayek and Friedman, their history with monetary economics should be explored further. Hayek, is often viewed as very pro-free market, even more so than Friedman. However, he still attempted to explore ideal monetary policy early in his life, but as his career progressed he noticed the futility of a government getting monetary policy correct and endorsed competing currencies, especially within a single country, to discover the most correct monetary policy. Milton Friedman is viewed as the father of modern monetary economics and policy, but towards the end of his career he endorsed competing “e-cash” systems. Contrarily, Mundell’s research lead to the creation of the Euro, currency and monetary unification in Europe, but could not achieve fiscal unification, which partially lead to the Eurozone crises.
Non-uniform currencies cannot be immediately written off based on only failed historical eras since any modern international traveler knows that shops along countries’ boarders will typically accept multiple currencies and consumers will carry a quantity of both currencies. The vast options of multiple currencies in pre-civil war United States was a failure, as Bullard notes, and led to the calls for currency unification. However, technology and human behavior has evolved since then. Cryptocurrencies are not a stack of different papers from different issuing banks, but easily accessible numbers on a computer or phone whose exchange rates can easily be checked on a website or an app. This removes many of the barriers to using multiple currencies that existed in pre-civil war United States. In addition, the significant pain in that era was the lack of trust and transparency with the private currency issuers, however, it is now many cryptocurrencies that garner more trust with their open code than governments whom often obfuscate much of their calculations for monetary policy.
Dash is being used as an alternative to fiat
Consumers reveal their preferences with their actions of purchasing items. Dash is being used across the world in numerous storefronts and online shops, which reveals that consumers have chosen to use Dash over alternatives such as fiat currencies. Bullard mentioned Venzuela’s hyperinflation as a monetary solution problem rather than a governmental structure problem that has reoccurred repeatedly throughout history in different countries. Dash adoption in Venezuela has demonstrated that consumers will opt for fast, inexpensive, and secure alternative currency when faced with the opposite in their national currency. Additionally, the fact that Dash adoption is not limited to countries with high inflation reveals that consumers still have a preference for alternatives to national currencies for factors other than inflation avoidance.
Dash strives to make a product that satisfies as many consumer desires as possible, but with no central authority attempting to guess those desires and dictating plans to reach those goals. Dash not only allows open development and integration, but is also able to incentivize development and integration of the network by numerous entrepreneurs attempting to satisfy what they believe to be the desires of consumers. The rapid adoption of Dash signals that consumers want alternatives and are willing to trade fiat for the attributes that Dash offers.