EP 14: International Bitcoin (Gold) Standard?

Bitcoin's role in the international monetary order.

Apologies for the late episode. There were some serious technical issues and I had to record everything 6 times. I wish I was kidding.

TLDR below. This is not financial advice.

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General Conclusion

Did you know how money was once backed by gold? That was called the International Gold Standard. Since Bitcoin is "digital gold", can we go back to the system and create an International Bitcoin Standard?

In this episode, we will uncover why Bitcoin will never play a role in the international monetary order. We do this by uncovering the various international monetary order the world has seen — International Gold Standard, Bretton Woods, Plaza Louvre Accord.

1. Lessons Learnt from International Monetary Order (IMO)

We need an international monetary order to coordinate countries' monetary policy and macro-policies.

How? We do that by having rules and countries must follow.

At the end of the day, we need price stability and financial stability in an IMO.

2. Bitcoin's Role in IMO

Bitcoin has the function as a store of value due to people's believe in the price level. Yet, it is difficult to be a medium of exchange nor unit if account due to the price volatility.

It will still function on a P2P level, but not on an international trade level. Because it is not meant to do so, as much as the neolibertarians would love for it to be true.

3. Why Bitcoin will never be part of IMO?

Bitcoin's in-code governance of monetary policy is unlike that of central banks. It does not have any nominal anchor to target price stability. So, it will be difficult for it to play a role in the IMO, and replace like the USD.

Also, Bitcoin does not have a discretionary control over its monetary base (which is good!). So if we use Bitcoin like gold and have money backed by gold, it will work for a while until it stops working, like how the international gold standard failed.

And because of that, other countries will not want to anchor their currencies to bitcoin. And you also do not see bitcoin anchoring the exchange rates to other countries due to the in-code governance.

What Else You've Missed

  • Rules of the game and monetary policy rules countries must abide by

  • Failure of the various international monetary order

  • Problems and solutions to the various orders

  • What's next for international monetary order, considering that things like Facebook's Libra and stable coins exist

  • Why it is important to have such coordination from an international level? Because otherwise, the casualty in this financial playing field is people like you and me!


TLDR:

Bitcoin's automated monetary policy does not have a nominal anchor and thus does not strive for price nor financial stability. It will continue to function on a P2P level, as it was meant to be. But not on an international trade and finance level, as it was not designed to do so

If you are keen to learn more, we are currently having a discount for the Token Economics Blueprint course! It's a 10 lesson session and you can choose which section you are interested in. Total lesson time: 15 hours.