In Search of a Stable Electronic Currency

This one went past me until today.  Professor Robert Shiller writes a piece on March 2nd titled “In Search of a Stable Electronic Currency”.  It is utterly commentable, even if not new at all.

Shiller makes the usual unsupported comment about bubbleness of Bitcoin, already expounded by him at Davos and by many others on most media.  Not very original and, I believe, well discussed and debunked in many fora.

The fun thing is his plea for indexed currencies.  It goes like this:

Since money is a poor unit of account because it, generally, inflates (this claim is made obliquely, probably not to offend the inflators), let’s adopt indexed “quasi-currencies” based on a basket of goods.  The example of Chile’ UF is celebrated here by Prof Shiller himself.

In fact, Shiller’s paper speaks with regret about the second thoughts in Chile, where they realize that now the UF is turning from an anti-inflationary measure into a perpetuator and propagator of inflation.  The Chilean (very practical people if you ask me), used the UF as a means to straightjacket inflation, to a point where their discipline in the peso is now better than the lagging measure provided by the UF.  It is now like a waist belt.  It no longer strangles a runaway belly so you now have the luxury of worrying it can slightly widen your waistline.

However, he goes on to proposed many baskets, relevant to different audiences.  The retired persons’ basket is innocent enough, the dirt poor a little more offensive and, by extension, there could be the golf enthusiast’s and the porn addicted’s baskets as well.  Setting aside the obvious fact that any such index is subject to manipulation and bona fide statistical problems, which become more acute the more the indices are specific, this idea that humans should have not one unit of measure, albeit an imperfect one, but multiple ones (imagine the seventy year old porn-addicted golfer’s dilemmas!) in my humble opinion is both unworkable and undesirable.

What purpose would it serve for our golfer (or society) that she got into Amazon to buy a loaf of bread with the price expressed in her retiree basket while her homeless son logs in to buy a similar loaf with a price measured in subsistence basket?  While this extreme example is designed to be ludicrous, I think it represents facts well enough.

Although PayPal or Square Cash are “newish” and could make the use of some baskets a little easier, the idea is hardly revolutionary.  Indices for private and public contracts have existed for a long time and beyond Chile’s borders (this one looks interesting you can read Icelandic).  With serious and reliable statistical bureaus, they help add certainty to long term agreements in spite of changing conditions.  Many derivatives in developed financial markets are nothing but risk-reducing indices. However, where the transaction size or timespan are not paramount, they are just meaningless.

Finally, what’s that got to do with crypto currencies?

As a graduate in Economics, I have the utmost respect for those who study the discipline and know more theory than I do.  All the more reason to be baffled when reason, common knowledge and common sense are abused in order to gain the spotlight or advance pet interests.


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