The Future of Money.

Author:O'Driscoll, Gerald P., Jr.
  1. Introduction

    Just over twenty years ago, the Cato Institute published a volume of essays on the future of money (Dorn 1997). (1) The work anticipated many of the issues being discussed today. They included monetary policy in the information age and the future of banking. It began with a section on electronic commerce and monetary evolution, which was a prescient pairing of two developments now obviously linked (but less so at the time). Many of the authors in that volume, such as Lawrence H. White, George Selgin, and Jerry Jordan, are active participants in today's debates over the future of money. Money has continued evolving, as has the discussion, but themes recur.

    The papers in this symposium reflect both the evolution of money and finance, and the theories and evidence on that evolution. England and Fratrik (2018) provide an overview of the issues surrounding bitcoin and other cryptocurrencies. The authors are agnostic about bitcoin's future as either money or a financial asset. They set forth all the major factors impacting that future and leave it to the reader to decide.

    England and Fratrik consider whether bitcoin is money now (pp. 12-13). (2) They answer their own question by asking whether bitcoins are a generally accepted medium of exchange, a unit of account, and a store of value. They answer no to the first two and yes to the third. So, they conclude that bitcoins are not money now. Luther (2018, p. 31) asks the same question, but is less definitive on whether bitcoins are money now. I will return to this issue later.

    In late 2017, bitcoin's price surged to $18,000 with the emergence of futures markets. We will leave it to bloggers to keep up with daily developments. We will persist with principles and analysis in the two bitcoin papers. A surging price does not by itself change the issues raised in the papers.

    England and Fratrik (2018, pp. 13-14) review the creation of bitcoin in response to the trust issue raised by the historical record of monetary debasement. Bitcoin depends not on trust in a central authority, but on trust in its algorithm and the distributed ledger system. Other alternatives to government fiat money discussed over the years include gold and competitive currencies. Advances in cryptography created new possibilities.

    Privacy concerns have enhanced interest in bitcoin and other cryptocurrencies. But solving privacy concerns brings blowback from banking regulators and law enforcement, who worry especially about bitcoin's usefulness to conduct transactions on the dark web and to evade anti-money-laundering statutes (England and Fratrik 2018, p. 17). This has brought government into the world of bitcoin. Governments around the world have reacted differently, with China being the most draconian in its regulations. US officials are still feeling their way through the e-currency maze (England and Fratrik 2018, pp. 19-22). But signs indicate that they are not inclined to permit bitcoins to become a virtual currency.

    What, then, of bitcoin's future? Perhaps it is as a store of value, rivaling gold. Gold's durability is well known, and its long history certainly gives it an advantage. But as England and Fratrik (2018, p. 24) explain, bitcoin has its own advantages: "Bitcoins are divisible and more portable than physical gold or even wealth held in a local financial...

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