Escaping the zero lower bound: edge share.

Having already written on this subject, I post here today another take on the issue of the current conundrums about Monetary Policy. The quest between Inflation targeting – if the target should be raised above the 2% consensus – is again brought to the front line of discussion. This Blog longandvariable defends here a position of criticism (rightly so…) about the today’s feasibility of Electronic money and its potential of resolving the issue of zero lower bound in Monetary Economics. The last paragraph is worth a recall:

What Rogoff thinks would particularly ‘baffle’ central bankers’ constituents was that they had changed their minds about the benefits of price stability.  There’s something in this.  But it should not be the overriding concern.    And:  the profession has done a lot of changing of minds recently!  We would hardly decide against tightening prudential supervisory standards on the grounds that we would baffle everyone that we had changed our minds on it.  On the contrary, it would be perplexing if the authorities had not changed their minds in the light of the evidence about what constituted good policy.  So too with inflation.  For generations, the authorities wrestled with different metallic standards for monetary policy.  Finally, we ‘changed our minds’ about this being the right thing to do.  It was probably baffling at the beginning.  But slowly people got used to the meaninglessness of the ‘promise to pay the bearer on demand the sum of’ text.”

Escaping the zero lower bound: electronic money, or higher inflation?.

via Escaping the zero lower bound: electronic money, or higher inflation?.

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A post on Bitcoin.

This is a Blog that tries to boldly navigate and understand the world of Investment, Economics and, by being bold to honour the subtitle of entrepreneurship.

Today I would like to post about the most recent innovation that is buzzing around for the past couple of years or so: Bitcoin. This is what is called the leading cryptocurrency. Yes there are plenty of them. Even Amazon announced recently that it is planning to enter this field by selling its own cryptocurrency. But Bitcoin stills remains as a recognized leader.

I must confess that I’ve done my research on the topic, thought about it and drawn the conclusions that could possibly be drawn by someone in  a relatively limited position of knowing just the very basics about the technical details. There are however always the possibility of improving the required knowledge of the subject, a blessing of the age of open-source software. And combine this with the fundamentals of Money and monetary systems and try to pin down the real possibilities of Bitcoin ever reach a level of accepted means of exchange, store of value and unit of account and be truly considered proper Money. For now that seems only a very distant reality.

Notwithstanding all of this it is worth, I suppose, to take a look at a long series of entries in the Financial Times’s Alpahville about this new phenomenon by Izabella Kaminska and others. It makes for quite interesting read, and it is instructive and well researched, as always is the case in publications of indisputable merit and reference.

Much was written here and there about cryptocurrencies. For example the argument that they emerge as a byproduct of the recent Financial Crisis, that thorn the confidence in a centralised Monetary Systems; there is some truth in that maybe…. Then there are those that point to the obscure nature of its original founder: a japanese named Satoshi Nakamoto, that nobody knows who really is, to a sign that something of a conspiratorial nature may driving the motivation for the cryptomania. I wouldn’t buy in all those arguments. But looking at the undoubted skill of the proponents of Bitcoin in matters of Computer Science and of payments systems, maybe something more fundamental is going on and this something is at core of our Banking systems, the technology surrounding it and paths of innovation that inevitably will succeed in the field. Of that I’ve got no much doubts, given the pace of an intensive innovation sector. In the Banking sector just reminding ourselves of the current trend in Innovations like Big Data, the efforts to integrate the systems of Settlement and Clearing of securities or, in the more mundane Retail Banking with the strong trend of integration of  Telecommunications applications with the services of Banking, should make us humbly believe that the possibility of disruptive technological shocks is very high.

We all can see then that this ground is a fertile one for Innovation, Entrepreneurship and opportunities. But it is also one of its own perils, which will need understanding and good management. The recent bankruptcy scandal of a Bitcoin Broker cast a spell of doubt on the phenomenon though. There were losses to the tune of $400 million or more.

As always will be in the World of serious Business, carefull consideration, due diligence and high ethical standards must be the norm. Even if the innovations are sound and potential positively disruptive.