Bitcoin, “speculative asset” or currency?

François Villeroy de Galhau, Governor of the Banque de France, on February 16 on France Inter denied any monetary quality to Bitcoin, reducing it to the rank of “speculative asset”. The governor is in his role of central banker and therefore guardian of the currency when he criticizes this bizarre digital currency, a possible competitor in the monetary field that is his. What is more, the Banque de France belongs to a European monetary system, dominated by the European Central Bank, in principle sheltered from the monetary manipulations which delighted its predecessors in the very comfortable Governor’s chair, rue de la Vrillière, (Paris 1er) when we could from time to time devalue the national currency, namely the Franc, to get our economy out of a recurring rut.

However, François Villeroy de Galhau’s answer in no way explains either the birth or the overwhelming success of Bitcoin, whose name says what it is, wedge meaning coin and bit elementary unit of digital information. It is therefore necessary to say a little more here.

Recall that Bitcoin was created in 2008, the year of the greatest financial crisis since 1929, by a certain Satoshi Nakamoto, who is perhaps today the richest man in the world, since when the new currency was launched, it was barely worth a dime of a dollar whereas it is now worth nearly $ 50,000 (i.e. 500,000 times more than when it was created ). Do not look for his name in the directory. This financial genius is hiding behind a nickname.

In twelve years of existence, Bitcoin has certainly been shaken by violent upheavals, and not only because of its connections with the drug markets and the laundering of dirty money. But from these crises, he always came out on top; at the same time dozens of cryptocurrencies have been launched in its wake.

Why such perseverance in being?

To answer this question, we must first ask ourselves what money is, even if our brave governor forbids us to go in this direction with regard to Bitcoin, pejoratively reduced to the rank of “active speculative ”, as we have just seen.

Let us say it bluntly, contrary to what we teach on the bench of the grandes écoles of the Republic that our Governor obviously attended: money is an invention of merchants to facilitate trade – and not an invention of the State as it is harmed in France where one qualifies the currency of “royal attribute”. That the State then very quickly appropriated this admirable invention of the human genius of exchange to pervert it for its own benefit, in particular by manufacturing counterfeit money, does not change the fact that money was originally is a market product.

For millennia, money derived its intrinsic value from its metallic content (iron, bronze, silver, gold) – which had a huge advantage in regulating the entire economy:

Any general rise in the price of commodities translates into a drop in the value of money, since the same amount of metal can buy less commodities than before. And this fall in the value of money leads, sooner or later, to a decrease in the production of money, and consequently in the supply of money, which in the long term will end up lowering prices.

Conversely, any general decline in commodity prices equates to an increase in the value of money, since the same amount of metal can buy more commodities than before. And this increase in the value of money sooner or later leads to an increase in the production of money, and consequently in the supply of money, which in the long term will eventually increase prices.

This stabilizing mechanism does not require – it should be emphasized – any intervention of any authority whatsoever. Regulation takes place on its own because the currency in question is itself anchored in the most material reality – a feature that should be of interest to environmentalists, by the way, but also to our central bankers who are looking distraught with a rule for their monetary policy. The 2% Inflation Standard that the European Central Bank has adopted for a quarter of a century, unfortunately! behind the American central bank, only ends up drowning the engines of the economy more and more under a sea of ​​liquidity. The health crisis has turned this sea into a real deluge, which no one can say today who will come out unscathed, apart from the smart kids close to the Phynances Pump, as Father Ubu would have said.

This is where we see that the mysterious Satoshi Nakamoto knows or was perfectly familiar with monetary history.

To summarize this whole story in a single formula, we will say that the central bank plays the role of “trusted third party” between the issuer of the money and its user, since it is supposed to be the guardian of the money. However, it is precisely this role of “trusted third party” that the inventor of Bitcoin wants to exempt us from thanks to the invention, also brilliant, of the Blockchain.

The Blockchain makes it possible to guarantee peer-to-peer (P2P) relationships without possible falsification, that is to say without an intermediary.

No central bank is now needed for money production. The European Central Bank goes by the wayside, and with it, the Old Lady of the rue de la Vrillière. In summary, the Blockchain is a gigantic account book, tamper-proof in the current state of digital knowledge, self-controlled, where the slightest operation is recorded and verified, each bitcoin being absolutely impossible to duplicate and therefore being absolutely unique.

Who keeps the keepers themselves?

Thus the Blockchain makes it possible to answer the old question: How and why, indeed, to trust “trusted third parties”, even if they have the agreement of both parties?

A certain Juvenal, a Latin satirist of the first century AD, a bit misogynist, was mainly concerned with the preservation of the virtue of women, and asked the question: Quis custodiet ipsos custodes? Who keeps the keepers themselves? He supposed that the erotic power of women was such that the men in charge of them would sooner or later give in to their charms. Even eunuchs would succumb, it was feared. The question is fascinating not so much because of the problem posed by Juvénal, but because it is infinitely “regressive”. In fact, assuming a guardian is found to guard the guardians, who will guard that guardian, and so on. Confidence is impossible in itself.

Also, the question of Juvénal has been mentioned, and even summoned, over the centuries, for all kinds of less frivolous subjects, such as for example the Basic Law of such and such a country (which keeps the guardians of the Constitution? And which keeps the special site of constitutional law). Or for the banking system. The central bank is in charge of the supervision of the banks, but who keeps the central bank?

Another major cause of Bitcoin’s success is its way of parodying metallic, hard and loose money.

It is no coincidence, in fact, that Bitcoin has a real devotion to the language of mining (miners, mining, etc.). Each Bitcoin that comes out of this gigantic digital forge is the product of verification work requiring insane computing power and consuming energy, like in a mine where the galleries are sinking deeper and deeper into the ground. It is also no coincidence that a large part of the success of this currency comes from the fact that the quantity of bitcoins issued is ultimately strictly limited. No authority in the system, it was announced at the outset, can “print” bitcoins at will like central banks have done since they existed. So no quantitative easing, the modern form of the printing press.

These are not coincidences, because the world economy is haunted by the ghost of the gold standard, abandoned in August 1914, that it prevents itself from thinking of causing the taboo inherited from the famous British economist John Maynard Keynes, which still reigns over many minds, particularly in France – the Governor did not fail to quote it in his interview. The famous Keynesian formula lashing out “gold as a barbaric relic” still wreaks havoc among those who have an obvious interest in making money ex nihilo, but also among most economists, bottle-fed fiat money and other papers. -coins.

No doubt, indeed, Bitcoin, like gold, are today “speculative assets”, but this is so because the currencies we use are increasingly fake.

Ps: Philippe Simonnot, columnist at France-Soir, former professor of law economics at Paris Sorbonne and Nanterre, gives a zoom conference on Thursday, February 18 from 1:30 p.m. on the question: how is Bitcoin a currency ? He recalls the circumstances of the invention of Bitcoin, the conditions to be fulfilled for one to make it an authentic currency, and the dereliction for several years of the currencies in circulation. .

https://bit.ly/3dkW2zvZOOM appointment

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