Naked Capitalism has the article How Bitcoin Plays Into the Hands of Central Bankers and Will Facilitate the Use of Negative Interest Rates. This is an interesting view wehn compared to my previous post about Why Bitcoin Matters . The thought that central banks could use the same techniques as Bitcoin had occurred to me. You can read the article to see why this makes sense.
Oh, and why would Bitcoin, um, central bank digital currency make it viable to implement negative interest rates? Kaminska tells us:
…the greater the negative interest rate, the greater the incentive to hold alternative coins. The greater the incentive to hold alternative coins ,the greater the incentive to produce them. The greater the incentive to produce them, the greater the chances of oversupply and collapse. The more sizeable the collapse, the more desirable the managed official e-money system ultimately becomes in comparison.
Either way, the key point with official e-money is that the hoarding incentives which would be generated by a negative interest rate policy can in this way be directed to private asset markets (which are not state guaranteed, and thus not safe for investors) rather than to state-guaranteed banknotes, which are guaranteed and preferable to anything negative yielding or risky (in a way that undermines the stimulative effects of negative interest rate policy).
So all these tales by Silicon Valley promoters (and remember, Marc Andressen mentioned all the money chasing Bitcoin-related ventures) of how liberating and democratic Bitcoin will be are almost certain to prove to be precisely the reverse. Hang onto your real world wallet.
I read and reread the excerpt above. For the life of me, I cannot make any sense of what this says about negative interest rates. I don’t get the hoarding. I don’t get the oversupply and collapse. I don’t get why this is good or even bad for the central banks, nor why this facilitates their implementing negative interest rates. Other than that, I fully understand 🙁