Bitcoin, not the solution to Greece’s woes, nor is it the solution to Ukraine’s woes either
It would seem that a few in the community have settled on the idea that for Bitcoin to succeed, it must become the official currency of a nation. Or maybe the goal isn’t Bitcoin’s success, but rather the inflation of the value of their own Bitcoin holdings. Either way, whenever there is discussion of a financial crisis erupting somewhere on the planet, the Bitcoin contingent steps forward and says “Bitcoin could fix this!”
For instance, Greece. The country has been a train wreck in slow-motion for several years now, offering a case study as to why nations need to have control over their national currencies.
Lets first rewind a second and recall that the U.S., too, went through a significant economic upheaval. When looking for solutions, fiscal conservatives pushed austerity measures to the front of the line, demanding the country right its ship by cutting back on programs designed to help the poor, the elderly, and the unemployed. We tried that, until it was clear that it wouldn’t work. By June of 2013, the International Monetary Fund was announcing that our austerity measures (i.e. the sequester) were wrecking our chances of economic growth.
Thankfully, the sequester came to an end, and the Fed made use of the biggest tool in its toolbox, Quantitative Easing, and printed it’s way out of the worst financial crisis it had seen. One should recall, the fiscal conservatives who demanded austerity, who enacted the sequester, were outraged by the idea of Quantitative Easing, and predicted all sorts of gloom and doom, including runaway inflation, and a second crash in the economy that would make the first one look like a mere hiccup. Those scenarios didn’t happen, and after a couple of years, the economy came back to life.
Greece’s situation has many of the same attributes as the U.S.’. Except, without control of its currency, it has been unable to attempt a QE-type program, as they essentially need the “approval” of the rest of the Eurozone countries in order to do so. This left austerity as the only tool in their arsenal, and after a couple of years, its roundly agreed that austerity measures have not helped fix Greece’s financial woes at all. As Greece’s policymakers survey their options, once again, a QE-type program is under their consideration, which would mean leaving the Eurozone and adopting a currency of their own.
This is where Bitcoin proponents jump forward and say “well, if they need to adopt a new currency, they should make Bitcoin their currency“. Of course such an action would be fantastic for those who hold Bitcoin already, but doing so would leave Greece in exactly the same situation as it’s been in for the last few years. They would still have the same fiscal imbalances, and they would still be unable to use the same range of tools that the U.S. used to combat its financial crisis. Only difference would be that instead of other countries handcuffing Greece and preventing them from printing their way out of their dilemma, the shackles would then be in the form of Bitcoin’s inflexibility. That inflexibility is billed as a benefit by the Bitcoin community, and indeed, it might well be, but it’s not compatible with what Greece is searching for.
Today, the headlines have been that Ukraine is suffering from a rate of inflation that’s over 272%, i.e. hyperinflation. And once again, some in the Bitcoin community step forward and say “to protect the value of their savings’, Ukrainians should put their money in Bitcoin”.
Even before the recent surge in inflation, Ukraine’s Hryvnia was the worst performing currency in the wold in 2014, when it lost 47.83%. Would Ukrainian savers have fared any better with Bitcoin? Of course not! The currency lost 56% of its value in 2014.
For comparison, holders of the U.S. dollar suffered from inflation of just less than 1% in 2014, and holders of the Euro saw their purchasing power decline by 9.6% compared to the Dollar.
One has to ask, how blinded by their technology some of these people must be for them to see different nations going through their own financial crisis’, and then suggesting Bitcoin as the solution, when the plain facts are that Bitcoin would either have had no effect on their current predicaments, or would have made their situations even worse.
Again – Greece tried austerity, it didn’t work. We (the U.S.) didn’t even bother with that, and instead printed our way out of our crisis. In evaluating its future options, it’s becoming more and more clear that Greece will need to embark on a program similar to our own QE program. That would be possible if they introduced a new fiat currency for their nation. Under Bitcoin, such a solution would be impossible. In other words, Bitcoin is not the solution to Greece’s woes.
Again – Ukraine is watching its currency crumble. People who kept their cash under their mattresses saw the value of their cash fall by nearly 48% last year. Answer Bitcoin? No – Bitcoin was the only “currency” in the world to fare worse, having lost 56% of its value during that same time period.
Bitcoin suffers from being a solution in search of a problem, which causes its supporters to look at every financial crisis and say to themselves “Bitcoin can fix this”, even when it plainly can’t. Not only that, but so many holders of Bitcoin fixate on ways to increase buy-side demand for the currency in order to increase the value of their own holdings, so strategies for getting a Nation to adopt Bitcoin as its currency get tossed around constantly.
I’ll say it here – Bitcoin will never be any countries official currency. The risks are too great, and the benefits non-existant. Perhaps that will even be the subject of a future article. But just because it will never be a national currency, that doesn’t mean its doomed to failure. It’s not, or it doesn’t have to be.
But what we need to do is create compelling use cases for Bitcoin and stop dreaming that a country, any country, will adopt Bitcoin and make us all rich in the process.
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