Monday, 17 March 2014

New money

THIS week's Free exchange column looks at some of the monetary economics of Bitcoin. One of the funny (and telling) things about Bitcoin is that its basic technical details are sufficiently complicated that every piece on the subject must begin with some sort of explainer. For that, let me direct you to a companion piece to the Free exchange, which looks at Bitcoin as a technological platform.

Bitcoin is really quite ingenious and elegant, but it has all sorts of basic flaws that make it an unlikely candidate for world domination. The Free exchange focuses on one in particular: limited supply.

The currency’s “money supply” will eventually be capped at 21m units. To Bitcoin’s libertarian disciples, that is a neat way to preclude the inflationary central-bank meddling to which most currencies are prone. Yet modern central banks favour low but positive inflation for good reason. In the real world wages are “sticky”: firms find it difficult to cut their employees’ pay. A modicum of inflation greases the system by, in effect, cutting the wages of workers whose pay...Continue reading



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