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>"That confidence is derived from central banks’ ability to reduce supply when demand is falling." So the core feature that drives interest in cryptocurrencies

>"That confidence is derived from central banks’ ability to reduce supply when demand is falling." So the core feature that drives interest in cryptocurrencies, a lack of central management, is a problem for this economist. >The “fundamental flaw” inherent in cryptocurrencies is that supply can’t be reduced when demand is slumping in most cases, Paul Donovan, chief economist at UBS GWM, said in a video this week. That means they can’t be considered currencies, he said. Yet the example of the central bank managed currencies is an exercise in constant inflation of the money supply. If Donovan's observation were accurate, how can he explain humanity's long history with monetary metals. Gold and silver are still regarded by some as the only legitimate forms of money. Overbearing regulations are driving the use of cryptocurrency. Artificially low interest rates are driving speculation. Rampant money supply inflation is driving people to seek other ways to save. It is almost as if this author is completely disconnected from reality. Legal tender laws, Gresham's law and the cumbersome nature of many cryptocurrencies have more bearing on the currency people choose to transact with everyday.

rojeee 6y ago
Lot's of comments to pick up on this post but one in particular stands out... > If Donovan's observation were accurate, how can he explain humanity's long history with monetary metals. Gold and silver are still regarded by some as the only legitimate forms of money. I'm not sure how true that -- money is precious metals -- has been throughout history. For example, if you look at coins from the past, they are all different weights and mostly made of greatly differing ratios of various metals and alloys. There were never really coins of uniform weight and until early modern times we didn't really have the technology to even mint coins with a uniform weight. Whilst the unit of account probably was some weight of precious metal, e.g. the weight in silver of a bushel of wheat (shekel), the issuers of these coins rarely offered convertibility to precious metals. Furthermore, the nominal value of the coins were typically higher than the intrinsic value of the coin, even for coins made from gold and silver. If the coins has a nominal value equal to or lower than the intrinsic value of the coin, then people would melt them down into bullion. So the assertion that the unit of account was a gold coin of a particular weight seems as unlikely as it is illogical. Instead, the coins typically represented a debt of the issuer valued at the nominal value of the coin. Even still, most people didn't even use coins. Kings would withdraw all coins from circulation to re-mint them and commerce would continue as usual because most people just used credit ledgers to transact with each other. Ergo, money usually always has been and will continue to be credit/debt. Gold is not money... it's a commodity, albeit a valuable one :) From what I've read, it seems we only recently (since early modern times) developed an obsession with precious metals as money. Of course, we tried a gold standard but it ends up in deflation and misery for all involved so I don't suspect we will go back to it.
- nathias 6y ago
  I don't know where you're getting this but it isn't really accurate. > There were never really coins of uniform weight and until early modern times we didn't really have the technology to even mint coins with a uniform weight. Nobody needs perfect uniformity, but they have been made practically uniform since the first coinage. >Whilst the unit of account probably was some weight of precious metal, e.g. the weight in silver of a bushel of wheat (shekel), the issuers of these coins rarely offered convertibility to precious metals. I don't understand what would that even mean? Gold coins are not convertable to gold? They are gold?
  - rojeee 6y ago
    Go to a museum (or pictures online) and look at old coins of the same fixed denomination. Often they will be made of different metals and of quite different shapes and sizes. The point being that the composition of the coin is mostly irrelevant. It’s the nominal value of the coin and it’s issuer which matters. The nominal value of the coin was maintained as long as the issuer of it remained liquid and solvent and the rest of the economy believed this was the case. If silver coins only had intrinsic value then the metal content and weight of them would be obviously of high importance. A 15g coin would be worth less than a 20g coin. But then these “coins” are not really money. Instead, they are just a commodity. Whilst there were points in history when coins were made uniform and of a specific grade of precious metal and stamped with a government seal (eg in the US in the early 1900s) those times didn’t last for a very long time because such a monetary system doesn’t work particularly well as deflation inevitably results. Regarding the unit of account. I can set a unit of account whereby one pound = 15g of silver (let’s call it a £) but the coins which I issue and circulate in the economy don’t have to be made from silver and don’t even need to be convertible to silver. This is how most governments operated coinage in the past. The unit of account is necessary because there must be a numeraire to measure prices, just like there is one for measuring distance or weight. So... a coin which represents £1 may contain only 5g of silver or even no silver and the rest be tin or some other alloy and this coin would not be convertible to 15g of silver. You are probably confused because people think that the medium of exchange also needs to be the unit of account (and a store of value) but typically that wasnt the case for most monetary systems of the past.

rojeee 6y ago

Lot's of comments to pick up on this post but one in particular stands out... > If Donovan's observation were accurate, how can he explain humanity's long history with monetary metals. Gold and silver are still regarded by some as the only legitimate forms of money. I'm not sure how true that -- money is precious metals -- has been throughout history. For example, if you look at coins from the past, they are all different weights and mostly made of greatly differing ratios of various metals and alloys. There were never really coins of uniform weight and until early modern times we didn't really have the technology to even mint coins with a uniform weight. Whilst the unit of account probably was some weight of precious metal, e.g. the weight in silver of a bushel of wheat (shekel), the issuers of these coins rarely offered convertibility to precious metals. Furthermore, the nominal value of the coins were typically higher than the intrinsic value of the coin, even for coins made from gold and silver. If the coins has a nominal value equal to or lower than the intrinsic value of the coin, then people would melt them down into bullion. So the assertion that the unit of account was a gold coin of a particular weight seems as unlikely as it is illogical. Instead, the coins typically represented a debt of the issuer valued at the nominal value of the coin. Even still, most people didn't even use coins. Kings would withdraw all coins from circulation to re-mint them and commerce would continue as usual because most people just used credit ledgers to transact with each other. Ergo, money usually always has been and will continue to be credit/debt. Gold is not money... it's a commodity, albeit a valuable one :) From what I've read, it seems we only recently (since early modern times) developed an obsession with precious metals as money. Of course, we tried a gold standard but it ends up in deflation and misery for all involved so I don't suspect we will go back to it.

nathias 6y ago
I don't know where you're getting this but it isn't really accurate. > There were never really coins of uniform weight and until early modern times we didn't really have the technology to even mint coins with a uniform weight. Nobody needs perfect uniformity, but they have been made practically uniform since the first coinage. >Whilst the unit of account probably was some weight of precious metal, e.g. the weight in silver of a bushel of wheat (shekel), the issuers of these coins rarely offered convertibility to precious metals. I don't understand what would that even mean? Gold coins are not convertable to gold? They are gold?
- rojeee 6y ago
  Go to a museum (or pictures online) and look at old coins of the same fixed denomination. Often they will be made of different metals and of quite different shapes and sizes. The point being that the composition of the coin is mostly irrelevant. It’s the nominal value of the coin and it’s issuer which matters. The nominal value of the coin was maintained as long as the issuer of it remained liquid and solvent and the rest of the economy believed this was the case. If silver coins only had intrinsic value then the metal content and weight of them would be obviously of high importance. A 15g coin would be worth less than a 20g coin. But then these “coins” are not really money. Instead, they are just a commodity. Whilst there were points in history when coins were made uniform and of a specific grade of precious metal and stamped with a government seal (eg in the US in the early 1900s) those times didn’t last for a very long time because such a monetary system doesn’t work particularly well as deflation inevitably results. Regarding the unit of account. I can set a unit of account whereby one pound = 15g of silver (let’s call it a £) but the coins which I issue and circulate in the economy don’t have to be made from silver and don’t even need to be convertible to silver. This is how most governments operated coinage in the past. The unit of account is necessary because there must be a numeraire to measure prices, just like there is one for measuring distance or weight. So... a coin which represents £1 may contain only 5g of silver or even no silver and the rest be tin or some other alloy and this coin would not be convertible to 15g of silver. You are probably confused because people think that the medium of exchange also needs to be the unit of account (and a store of value) but typically that wasnt the case for most monetary systems of the past.