Bitcoin

Bitcoin has become a bit of fad. It a form of electronic money that grows slowly over time, in an imitation of the way that the volume of gold grows as more is mined. I don’t think bitcoin is the future, but it points to a few issues with modern money systems.

1. Money is a record of payments and receipts. Most of the money that people use these days is electronic. That will continue to be the case unless international communications completely breaks down (but that would be a huge economic disaster).

2. Money is a record of a “partly completely transaction”. The volume of uncompleted transactions can increase and decline over time, depending on what people are doing. More on this here.

3. Recent events in Cyprus have made people think again about the security of money in the bank. Depositors have had the value of their deposits arbitrarily reduced. Here in NZ, the central bank has announced a process for taking a haircut from deposits in a situation where a major bank is in danger of collapse. These events are not reassuring. People are beginning to realise that we need a better system of money.

4. Modern banking processes make international money transfers quite expensive. I have to pay $5.00 to bank a check issued by a major international business. This seems excessive, given there is almost no risk of the check bouncing, and the bank demands the right to reverse the payment and charge another fee if the check does not clear. People are looking for better ways to make international transactions in an electronic world.