The Organization for Economic Co-operation and Development (OECD) has released a paper on Bitcoin, exploring its potential and the risks involved in its use. OECD is a coalition of 34 countries, founded in 1961, which encourages international economic cooperation. The organization serves as a platform for the member countries to come together and discuss things related to their individual economies, as well as the global economy. The country representatives use this platform to discuss current economic events, and to share the results of their economic policies.
Coindesk reports that, rather than condemning Bitcoin, and crypto-currency in general, the OECD paper concluded that the blockchain technology could bring about a revolutionary shift in the global monetary system at some point in the future. The paper did, however, warn of the risks involved in using Bitcoin, such as fraud and theft. But problems such as these are not inherent in the blockchain technology, and the Bitcoin community has been constantly developing solutions to make Bitcoin more secure and easier to use.
“The technology associated with cryptocurrencies… could ultimately shift the entire basis of trust involved in any financial transaction. It is an innovation that creates the ability to carry out transactions without the need for a trusted third-party.”
Bitcoin: A Trustless Payment System
A significant portion of the OECD paper explored the potential of Bitcoin’s trustless nature to change payment systems worldwide. It also pointed out the inexpensive method of transferring bitcoins and stated it as an overall positive for the world’s economy. With Bitcoin, people are able to transfer money across geographical boundaries, across oceans, with very little friction and cost. The potential global benefits Bitcoin can have for individuals in developing countries are unlimited. It could completely change the remittance market, making it much more efficient an inexpensive than traditional wire transfer services, like Western Union’s money transferring service. Bitcoin could even make it easier for corporations to invest in foreign countries, thereby bringing jobs, prosperity, and an overall increase in the standard of living for impoverished families in the developing world.
OECD says: Bitcoin “Can Never Become an Alternative to Legal Tender”
The OECD seems to have one grand error in their reasoning when it comes to crypto-currency, however. The paper states that Bitcoin, or any other crypto-currency, can never become real currency that can replace legal tender. Their reasoning behind this statement is that “people need to pay their taxes.”
“Crypto-currencies can never become an alternative to legal tender, for the simple reason that people have to pay their taxes. This protects existing fiat currencies from being displaced, and the fear of loss of monetary control should not be used as an argument to prevent Bitcoins from circulating as parallel currencies.”
It seems as though the OECD assumes that the users of Bitcoin wish to operate within the mainstream, government-controlled economic spheres. They apparently do not understand that Bitcoin was never meant to operate “parallel” to fiat currency. The entire purpose of developing Bitcoin was to create a trustless cash system in which users did not have to worry about their money supply being manipulated and devalued by central banks. Bitcoin was not made so that you could use it to pay your taxes. Bitcoin is designed to undermine government financial institutions altogether.
This author is amazed that the OECD believes that the Bitcoin communitiy wishes to blend in and comply with the governmental monopolies on money. Many, if not the majority, of Bitcoin users who are truly enthusiastic, and use it as a real currency rather than an investment to be cashed in at the right price, have no desire to reconcile crypto-currency with the standing financial system of governmental control, which involves theft, extortion, and intimidation. They do not use Bitcoin while hoping that one day the government will recognize it as a legitimate medium of exchange and start stealing it from them. They conduct trade with their bitcoins and envision a future where governments and central banks have no authority or ability to dictate what individuals will do with their money. The sole purpose for Bitcoin being designed with a built in restriction on supply is so it will act as an even better version of gold. Not only will Bitcoin make it impossible for central banks to inflate the money supply and cause devastating business cycles, but it will make it impossible for governments to watch what individuals are doing with their money, given they implement proper cybersecurity measures. The intent of Bitcoin is to remove government from the economy altogether by making it impossible for government to track the economic activities of individuals. Any talk of bringing any crypto-currency under the monopolistic control of government is not needed.
“Policy Issues” Essentially Equates to Bitcoin Regulation
The OECD paper brings up a number of “policy issues” that governments should resolve in order to make crypto-currencies a truly viable currency that can operate parallel to government fiat currencies. Some of these “issues” include:
- “A general ban on any form of use of crypto currencies in the clearing system between banks and the central bank– to ensure that the monetary system is not undermined.”
- “Some form of agreement for best form of practice registration that permits consumer protection, tax and anti-laundering authorities to verify the owner’s identity.”
- “Some form of backing for crypto-currencies may be wise– such as gold.”
- “The use of government plenary powers to close down all non-complying networks.”
Clearly, the OECD has no intention of allowing the true potential of Bitcoin to be realized. The policy suggestions of this paper all involve restricting the use of Bitcoin in one way or another.
Granted, the OECD has nothing but good intentions in writing this paper; the organization does not want to see Bitcoin be banned like some governments are talking about doing. They really do want to see it be used as a beneficial supplement to the existing monetary system. The paper even acknowledges that the trustless payment technology can be separated from the currencies themselves and be used to improve mainstream financial institutions. But their suggestions simply miss the mark. Their suggestions contradict all of the economic and ideological principles that Bitcoin serves to reinforce.
If you wish to read the OECD paper in its entirety, it can be found here.
I agree. Gresham’s law predicts bitcoin cannot be a currency as long as worse money is circulating.
Gresham’s law only applies when the government mandates a parity between two currencies. This is because the bad money is being overvalued while the good money is being undervalued, so people will either hoard the good money or spend it abroad and dump the bad money on the domestic markets, which hurts the economy. No such mandated parity exists between Bitcoin and fiat currency. Therefore, Gresham’s law will not take place. Fiat is constantly depreciating while Bitcoin is constantly appreciating, and the two are not forced to be treated as if they were both of equal value. So Bitcoin won’t disappear like it would under Gresham’s law, it will simply replace fiat currency because it is constantly increasing in value relative to the depreciating value of fiat. Allow me to refer you to F.A. Hayek’s Denationalisation of Money, p. 41-43, for a more in depth explanation of why Gresham’s law does not apply to parallel currencies when a government mandated parity is not involved.
Good thing we don’t need their permission.