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From gold to Bitcoin. In this episode, we are joined by Professor Lawrence White to explore a comparative history of money, starting with the era of the gold standard. We trace the origins of bank notes, private money, and the underpinnings (and shortfalls) of monetary systems across Latin America and the Caribbean.
Our discussion begins with dollarization rumblings across Latin America, namely Argentina. "In a way, dollarization is a bit like going back to the gold standard in the 19th century. You're adopting external money that's a world currency. This has the effect of constraining the budget of the home country, as they can't just issue more money to finance their debts and have to be more fiscally prudent." Latin America is no stranger to dollarization. Panamá has been dollarized since 1904 and is the only country in Latin America where you can have a 30-year mortgage, a testament to the stability of their economic landscape. Post-elections, it would appear that President Milei's plans for the Central Bank of Argentina are on hold. The coming decade will prove to be an interesting one for the country's financial landscape and either a success or a cautionary tale for the region.
Similar to the last century's gold standard, is the idea of Bitcoin as a reserve currency. Circulation of the digital token began in 2009, and it was even made legal tender through legislation by El Salvador in 2021. Could Bitcoin take on a similar role as conventional money? The Bitcoin network has proven its robustness in terms of being a payment network. The system itself can't be censored, i.e., no single body like a central bank can prohibit or block transactions. However, Bitcoin's bid to become a global currency like gold or the US dollar is hamstrung by its purchasing power volatility. Bitcoin's primary use is as a means of investment, rather than a true payment vehicle for the masses as a result.
So, what about other digital alternatives? What if a Central Bank digitized the local currency? Professor Lawrence argues that CBDCs (Central Bank Digital Currency) are a threat to privacy and some basic freedoms that cash facilitates. A CBDC could also be a logistics nightmare in terms of retail payment services. You, a citizen, could hold a bank account with the Federal Reserve, which has no tangible experience in fulfilling the necessary services. So, for now, it'll be dollars and a mix of both cash and the ones and zeroes on bank ledgers that already make up the majority of all money on Earth.
Better Money: Gold, Fiat or Bitcoin by Lawrence White
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