Is Bitcoin a Good Money?
In the latest Dialogue with the Fed presentation, David Andolfatto asks: “Is bitcoin a ‘good money’?” According to Andolfatto, a good money should maintain stable purchasing power over short periods of time, with price-level stability depending both on money supply and money demand.
Advocates of bitcoin, he says, want a rigid supply—a supply that’s free of political manipulation. But, as Andolfatto points out, the cost of a rigid supply is an inability to respond to demand volatility. In the short run, money demand can fluctuate dramatically, which has happened with bitcoin. Andolfatto shows the short-run volatility of the purchasing power of bitcoin, as well as gold.
- Dialogue with the Fed: Bitcoin and Beyond: The Possibilities and Pitfalls of Virtual Currencies
- Regional Economist: There Are Two Sides to Every Coin—Even to the Bitcoin, a Virtual Currency
- Regional Economist: Why Doesn’t the U.S. Return to the Gold Standard?