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.
Additional Resources
- 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?
This blog offers relevant commentary, analysis, research and data from our economists and other St. Louis Fed experts. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.
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