{"id":23341,"date":"2017-08-16T14:51:27","date_gmt":"2017-08-16T14:51:27","guid":{"rendered":"http:\/\/ci027cfe71700726c3"},"modified":"2017-08-16T14:51:27","modified_gmt":"2017-08-16T14:51:27","slug":"bank-canada-report-imagining-bitcoin-standard-financial-system","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/culture\/bank-canada-report-imagining-bitcoin-standard-financial-system","title":{"rendered":"Bank of Canada Report: Imagining a \u201cBitcoin Standard\u201d Financial System"},"content":{"rendered":"
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In a 37-page long research paper<\/a>, Warren E. Weber, research consultant at Bank of Canada who is also a visiting scholar at the Federal Reserve Bank of Atlanta and adjunct professor at the University of South Carolina, speculated about a financial system where bitcoin would be the standard currency (referred as the \u201cBitcoin standard\u201d) instead of fiat currencies.<\/p>\n

In the study, Weber explored the similarity between the Bitcoin standard and the gold standard. The research consultant chose to compare bitcoin to gold since the two have many similarities. The two most prominent resemblances include the lack of control of central banks or monetary authorities and the limit in the supply: Bitcoin\u2019s algorithm only allows the circulation of 21 million BTC while gold can be found in finite quantities on the planet. If the Bitcoin standard becomes real, there will be three distinct media of exchanges, just as there was under the gold standard. Bitcoin will serve as the main currency while there will be fiduciary currencies issued by countries\u2019 central banks, and fiduciary currencies (banknotes or deposits) issued by commercial banks.<\/p>\n

Issuing fiduciary currencies will be one of the very few abilities central banks can do as part of a monetary policy where banks will act as lenders of last resort. Bitcoin\u2019s \u201cvirtually costless arbitrage\u201d on an international scope will deprive the central banks of their ability to impose interest rate policies to affect their domestic economies, Weber detailed.<\/p>\n

Should Bitcoin serve as the standard medium of exchange, there would be a moderate increase in deflation; however, according to Weber, once a certain level is reached, the rate of deflation will be minimal. Price levels will become highly or perfectly correlated under Bitcoin\u2019s dominance in various countries, just as they did for those countries that adopted the gold standard. Despite the fact that the cryptocurrency would become the standard, Weber believes that economic crises could still happen since \u201cthey can occur under any fractional reserve financial system.\u201d<\/p>\n

According to Weber, the Bitcoin standard will benefit the economy in two ways. Due to the \u201cknown, deterministic rate\u201d at which new BTC is created, people would be able to predict the price level of the cryptocurrency more easily. The second benefit would be that investment resources which are currently devoted to hedging against fluctuations in the currency exchange rates would free up and could be used in \u201cmore productive ways.\u201d<\/p>\n

On the other hand, Weber thinks that the Bitcoin standard will never come into existence since there will be heavy opposition by central banks and governments. If the Bitcoin standard becomes real, neither the governments nor the central banks will be able to implement interest rates to affect their economies, neither could they generate seigniorage revenues obtained from their ability to \u201calmost costlessly create money,\u201d the Bank of Canada research consultant explained. Since the governments don\u2019t want to lose these powers, they will do anything to prevent Bitcoin from becoming the standard medium of exchange.<\/p>\n

Weber is also skeptical about the longevity of the Bitcoin standard. According to him, the financial system is advancing so rapidly that there would likely be another (crypto)currency that can provide the same or greater benefits as Bitcoin, possibly at lower costs. Furthermore, if a financial crisis occurs, an opposition is likely to emerge that would seek to replace the \u201cold\u201d financial system, rather like the way that Bitcoin is challenging today\u2019s status quo.<\/p>\n","protected":false},"excerpt":{"rendered":"

A Bitcoin standard could bring economic benefits like greater price-level predictability and resource liquidity.<\/p>\n","protected":false},"author":3533,"featured_media":23342,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[33],"tags":[2356,1528,1945,568],"class_list":{"0":"post-23341","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-culture","8":"tag-bank-of-canada","9":"tag-canada","10":"tag-central-bank-digital-currency","11":"tag-hyperbitcoinization"},"author_data":{"id":3533,"name":"Benjamin Vitaris","nicename":"benjamin-vitaris","avatar_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/12\/benjamin-vitaris-promo-image-96x96.jpg"},"featured_image_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/11\/bank-of-canada-report-imagining-a-bitcoin-standard-financial-system.jpg","_links":{"self":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/23341","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/users\/3533"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/comments?post=23341"}],"version-history":[{"count":0,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/23341\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media\/23342"}],"wp:attachment":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media?parent=23341"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/categories?post=23341"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/tags?post=23341"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}