Bitcoin's surging value could threaten central banks

Bitcoin’s surging value could threaten central banks

Jan 28, 2013

More than the world’s religions, its central banks are sacrosanct. Which is why it’s crazy that Bloomberg is now reporting that they could actually be threatened by the surging value of Bitcoin, the up-start alternative currency started by hackers a couple years ago to make untraceable financial transactions.

After an initial spike in interest the value of the Bitcoin dropped from a high of $29.58 to $2.14 in late 2011. But it has since recovered as it’s found more mainstream acceptance with more vendors accepting it for payment, and has bounced back to $16.37. It’s strengthened so much, in fact, that some financial experts are now getting worried that if it continues growing in popularity it could ultimately undermine central banks’ ability to manipulate the economy. Since Bitcoin is decentralized and unregulated, operating on pure supply and demand, it falls outside the scope of any central bank’s ability to control.

Bloomberg quotes Steve Hanke, a professor at Johns Hopkins University in Baltimore, who says, “I think the ECB obviously is concerned, and it’s not reputational. I think it’s a competitive threat. Maybe virtual currencies will be so convenient that they will pose a threat because of their ease of use.”

And the ECB itself said “This risk should be considered when assessing the overall risk situation of central banks.”

At its core Bitcoin embodies what’s so weird about money: it’s completely abstract. But unlike other currencies, whose valued is upheld by their governments’ guarantees, Bitcoin is valued solely by people agreeing to accept it as form of payment. The all-digital currency consists of encrypted bytes which can be sent without anyone being able to identifier the buyer or seller—which makes it a great currency for black markets, but also for private types untrusting of governments and banking institutions.

Wikileaks was probably the first time the internet’s ability to circumvent authority turned from a reputational threat to an operational threat. And Bitcoin’s surge marks the first time this threat could apply to the global economy. The hacktivist revolution officially has the ear of the oligarchs, that’s for sure.

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