Bitcoin and Beyond: Conclusion

March 30, 2014

David Andolfatto provides a look at the evolution of money and the long tradition of new currencies competing with old ones. Here, he also discusses the bitcoin competitors. One of the benefits of these new, virtual currencies is their ability (and desire) to be global. Perhaps, he says, the most important aspect of this technology revolution is the threat of entry into the money and payments system. This will force traditional institutions—including central banks—to either adapt or die. So how will this new wave affect central banks? Well-run central banks, Andolfatto argues, should welcome the emerging competition. There is room, he says, for beneficial coexistence—perhaps, establishing a blend of price-level stability and low-cost payments.

Presentation (PDF)


David Andolfatto: Alright, let me say a few words about the evolution of money. I'm just about done here. You know, there's a long tradition of new currencies competing with old currencies. I mean, I don't know if you guys are aware of it, but even in the United States, the United States has hundreds of local currencies that coexist. One of the most famous is the Ithaca Hour. You just go and Google it. It's been around for ages.

This new wave of currencies I see as an extension of this idea, but what's different is it combines the science of cryptology with the power of the Internet, and it's going to become global. So these currencies are no longer going to be kind of these local phenomenon. They're really quite ambitious. They want to be global.

A partial list of bitcoin competitors include Ripple, which I just mentioned, the Litecoin, the Auroracoin, which is something introduced in Iceland recently, Peercoin, Dogecoin, I don't even know how to pronounce that, Nxt, Mastercoin, Namecoin. Coin, coin, coin. Go and make your own coin.

I think probably the most important aspect of this technology revolution is, in my view, the threat of entry into the money and payments system. What I think it will do is to force traditional institutions, including central banks, to either adapt or die.

Let me conclude with a thought about the future of central banking. I don't think that well-run central banks have very much to worry about. I think, in fact, they should welcome this emerging currency competition. Central banks that are not well run should probably fear. Of course, I consider the Fed a well-run central bank. There is, in my view, room for beneficial coexistence. This might take many forms, but here I'm just speculating. One is we have already this institution, the Fed, we're celebrating our 100th anniversary this year in fact, it's stood the test of time. It's withstood this intense currency competition in the world, and the U.S. dollar is still the king. It's passed the market test for 100 years here. We have a politically independent Fed operating an elastic supply of currency—remember, I said there's some benefit to that if you can trust the institution to operate it—with a Congressionally assigned mandate. So for example, some notion of price level stability. I mean, that's basically what we have in this country, and arguably it's worked relatively well, although of course, no payment system is perfect.

And then, what I can see coexisting along side this institution is something like a Ripple platform, that currency agnostic peer-to-peer payment system I just described that facilitates low-cost payments. Potentially, consumers can bypass Western Union, that $10 service fee. That's going to be a thing of the past. I mean, with Ripple, you'll be able to send money anywhere in the world for very, very, very low cost. So that's something that could come together, kind of this marriage of... well, I thought I'd end on a happy note (shows picture of Janet Yellen and a robot representing Satoshi Nakamoto with the header "A Match Made in Heaven?")

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This popular lecture series addresses key issues and provides the opportunity to ask questions of Fed experts. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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