5 ms·

Modern (post gold standard) currencies have no intrinsic value either. Their only value is that people think they have value.

achompas 15y ago
Well it's more than people--my government believes the US dollar has value too, and it's willing to insure my bank accounts as a result. That's a hell of a vote of confidence.
- glenra 15y ago
  > my government believes the US dollar has value too, and it's willing to insure my bank accounts as a result. That's a hell of a vote of confidence. Really? When dollars were "silver certificates" the bank's willingness to let you come collect your silver was a real vote of confidence in the currency. But nowadays if they "insure your bank account" they only pay you back in dollars. They're insuring that its value doesn't drop in dollars. How does that constitute a vote of confidence in the currency itself? I'd say it's only a vote of confidence in (a) the bank, (b) the government's ability to print more money, (c) the government's ability to tax.
- kragen 15y ago
  There are several confusions in your short post. First, assuming you're talking about the US, your bank accounts are insured by the FDIC, and the FDIC is not part of or formally backed by the US government. There are lots of people who believe that if the FDIC were in danger of bankruptcy, the US government would step in to support it — as it did with Fannie Mae and Freddie Mac — but until the government actually promises to do that, you can't call it a "vote of confidence". Second, the US government's dollar position is short, not long — its dollar-denominated debts are greater than its dollar-denominated assets. In financial terms, a short position is a way to bet against the value of the underlying commodity. The US government is currently about $7 million million dollars "short". An illustration may help to clarify. Suppose you are a private in the Zimbabwean military in September 2007. Suppose your monthly pay is about US$180, but you are paid in Zimbabwean dollars, so your pay packet is actually Z$5.4 million for the month. The Zimbabwean dollar has been hyperinflating, and you expect it to continue to lose value. You don't currently need to pay any expenses. Consider the following options: A. Keep the Z$5.4 million in cash. B. Immediately buy other commodities with it; for example, buy 300 kilograms of rice and store it in Tupperware in the pantry. C. Immediately buy other commodities with it, and also borrow an additional Z$10 million some poor sucker is willing to lend you at an extortionate 20% APR, and use that to buy rice too. Option "A" is maintaining a "long" position in the Zimbabwean dollar. This amounts to a bet that the Z$ will retain its value. If you had taken this option, you would have lost 90% of your salary within a few weeks. Option "B" is maintaining no position in the Zimbabwean dollar. It doesn't matter what the Zimbabwean dollar does thereafter; you still have the same amount of rice. (Practically speaking, in situations like this, there tend to be price controls on most things you can buy with the collapsing currency.) Option "C" is maintaining a "short" position in the Zimbabwean dollar. If you had somehow found such a sucker, then within a few weeks, you could have paid them back by selling off a tiny percentage of the rice you bought, as the Zimbabwean dollar continued to inflate. This is the position the US government has taken relative to the US dollar. There are, of course, other reasons to take long or short positions on commodities other than speculation on their future value. Third, even if we accept the premise that the implicit guarantee of the US government to keep the FDIC afloat amounts to "the US government is willing to insure my bank accounts", that is simply a further short position. FDIC insurance is for dollar-denominated accounts up to a fixed dollar limit. Whoever is on the hook to underwrite that insurance in the end, they'll have an easier time paying out their claims if the US dollar loses value. If your bank account has $78000 in it and the currency loses ¾ of its value (which happened here in 2001), the FDIC bailout only has to come up with the current equivalent of $19500 to pay you back. Fourth, the government is not "more than people". It's just people.
  - beagle3 15y ago
    An excellent explanation. Sadly, I can only upvote it once.
  - achompas 15y ago
    Thanks for the great explanation on the US government's dollar position. I also thought about my comment some more later, and realized that inflation really devalues the FDIC's deposit insurance. I'll take issue with the government being "just people," but that's just a nit in a great post.
tptacek 15y ago
No, modern currencies are backed by the full faith and credit of nations, and while reasonable people can disagree about the value of the US credit rating, no reasonable person thinks it is zero. People need to start naming the dubious syllogisms bitbugs deploy in discussions like this.
- icarus_drowning 15y ago
  Bitcoin is, in a way, backed by the value that it brings as a currency-- privacy and anonymity. We can argue whether that value is $10 per BTC, but I also don't think any reasonable person thinks that it is zero.
  - tptacek 15y ago
    No, in fact, plenty of reasonable people do believe it is zero, and you cannot nerd your way out of that fact.
    - icarus_drowning 15y ago
      But that's not reasonable. Its just ignoring the privacy/anonymity value of BTC. Again, we can argue about the monetary value as compared to dollars, (especially given the tradeoffs-- i.e., convertibility to established currency, places to spend, etc) but that's real, practical value. You can't simply ignore it.
      - deleted 15y ago
        [deleted]
      - scott_s 15y ago
        Sure it's reasonable. I think bitcoins have zero value. I recognize that there may be people out there who are willing to pay real dollars for it right now, but I think that in the long run, no such people will exist. Hence, I place its value at zero.
        15y ago

achompas 15y ago

Well it's more than people--my government believes the US dollar has value too, and it's willing to insure my bank accounts as a result. That's a hell of a vote of confidence.

glenra 15y ago
> my government believes the US dollar has value too, and it's willing to insure my bank accounts as a result. That's a hell of a vote of confidence. Really? When dollars were "silver certificates" the bank's willingness to let you come collect your silver was a real vote of confidence in the currency. But nowadays if they "insure your bank account" they only pay you back in dollars. They're insuring that its value doesn't drop in dollars. How does that constitute a vote of confidence in the currency itself? I'd say it's only a vote of confidence in (a) the bank, (b) the government's ability to print more money, (c) the government's ability to tax.
kragen 15y ago
There are several confusions in your short post. First, assuming you're talking about the US, your bank accounts are insured by the FDIC, and the FDIC is not part of or formally backed by the US government. There are lots of people who believe that if the FDIC were in danger of bankruptcy, the US government would step in to support it — as it did with Fannie Mae and Freddie Mac — but until the government actually promises to do that, you can't call it a "vote of confidence". Second, the US government's dollar position is short, not long — its dollar-denominated debts are greater than its dollar-denominated assets. In financial terms, a short position is a way to bet against the value of the underlying commodity. The US government is currently about $7 million million dollars "short". An illustration may help to clarify. Suppose you are a private in the Zimbabwean military in September 2007. Suppose your monthly pay is about US$180, but you are paid in Zimbabwean dollars, so your pay packet is actually Z$5.4 million for the month. The Zimbabwean dollar has been hyperinflating, and you expect it to continue to lose value. You don't currently need to pay any expenses. Consider the following options: A. Keep the Z$5.4 million in cash. B. Immediately buy other commodities with it; for example, buy 300 kilograms of rice and store it in Tupperware in the pantry. C. Immediately buy other commodities with it, and also borrow an additional Z$10 million some poor sucker is willing to lend you at an extortionate 20% APR, and use that to buy rice too. Option "A" is maintaining a "long" position in the Zimbabwean dollar. This amounts to a bet that the Z$ will retain its value. If you had taken this option, you would have lost 90% of your salary within a few weeks. Option "B" is maintaining no position in the Zimbabwean dollar. It doesn't matter what the Zimbabwean dollar does thereafter; you still have the same amount of rice. (Practically speaking, in situations like this, there tend to be price controls on most things you can buy with the collapsing currency.) Option "C" is maintaining a "short" position in the Zimbabwean dollar. If you had somehow found such a sucker, then within a few weeks, you could have paid them back by selling off a tiny percentage of the rice you bought, as the Zimbabwean dollar continued to inflate. This is the position the US government has taken relative to the US dollar. There are, of course, other reasons to take long or short positions on commodities other than speculation on their future value. Third, even if we accept the premise that the implicit guarantee of the US government to keep the FDIC afloat amounts to "the US government is willing to insure my bank accounts", that is simply a further short position. FDIC insurance is for dollar-denominated accounts up to a fixed dollar limit. Whoever is on the hook to underwrite that insurance in the end, they'll have an easier time paying out their claims if the US dollar loses value. If your bank account has $78000 in it and the currency loses ¾ of its value (which happened here in 2001), the FDIC bailout only has to come up with the current equivalent of $19500 to pay you back. Fourth, the government is not "more than people". It's just people.
- beagle3 15y ago
  An excellent explanation. Sadly, I can only upvote it once.
- achompas 15y ago
  Thanks for the great explanation on the US government's dollar position. I also thought about my comment some more later, and realized that inflation really devalues the FDIC's deposit insurance. I'll take issue with the government being "just people," but that's just a nit in a great post.

tptacek 15y ago

No, modern currencies are backed by the full faith and credit of nations, and while reasonable people can disagree about the value of the US credit rating, no reasonable person thinks it is zero. People need to start naming the dubious syllogisms bitbugs deploy in discussions like this.

icarus_drowning 15y ago
Bitcoin is, in a way, backed by the value that it brings as a currency-- privacy and anonymity. We can argue whether that value is $10 per BTC, but I also don't think any reasonable person thinks that it is zero.
- tptacek 15y ago
  No, in fact, plenty of reasonable people do believe it is zero, and you cannot nerd your way out of that fact.
  - icarus_drowning 15y ago
    But that's not reasonable. Its just ignoring the privacy/anonymity value of BTC. Again, we can argue about the monetary value as compared to dollars, (especially given the tradeoffs-- i.e., convertibility to established currency, places to spend, etc) but that's real, practical value. You can't simply ignore it.
    - deleted 15y ago
      [deleted]
    - scott_s 15y ago
      Sure it's reasonable. I think bitcoins have zero value. I recognize that there may be people out there who are willing to pay real dollars for it right now, but I think that in the long run, no such people will exist. Hence, I place its value at zero.
      - 15y ago