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Up to a point, yes. But the whole point of money is that it serves as an intermediary for value, so that you don't need to do barter. If a currency is extremely
by jules 14y ago
Up to a point, yes. But the whole point of money is that it serves as an intermediary for value, so that you don't need to do barter. If a currency is extremely volatile this function is diminished because when you immediately have to get rid of your money to hold some kind of stable value you get closer and closer to a barter system. In the limit where nobody wants to hold money and immediately wants to get rid of it you get a barter system.
For example if bitcoin is so volatile that every time people earn one they immediately want to buy X with it to make sure they hold their value, you might as well skip the bitcoin step and directly use X as a currency, especially since a bitcoin transaction isn't free. X could be stocks, bonds, gold, dollars, etc.
- bradleyland 14y agoI agree 100%. One of the goals of a flexible money supply is to reduce the volatility of currency. As your economy grows, so should your money supply. This requires flexibility in money supply and tight analysis of the economy and money supply. There is a separate argument surrounding currency debt. That is, current policy doesn't strictly regulate the money supply in a way that tracks economic growth. They use debt as a means to "create" growth. I won't pretend that this is some sort of foregone conclusion, but the whole debacle involving Reinhart and Rogoff and their Excel error dealt a serious blow to those who object to the theory that debt drives growth. Again, I'm not saying the case is closed, but right now, the debt-driven-growth folks are winning the debate. When you fix your currency to a commodity or other non-controllable factor, you give up control of your money supply, which causes volatility of its own.
- rwj 14y agoReal world assets are not immune to fluctuations in value either. The idea that gold or some other physical asset has a fixed intrinsic value is an unfounded opinion. As an example, in the 17th century, the Netherlands experienced a large bubble in the value of... tulips.