The Federal Reserve Bank of St. Louis isn’t buying into the belief that because bitcoin isn’t tied to a real-world commodity, it shouldn’t have any monetary value.
In a blog post titled “Three Ways Bitcoin is Like Regular Currency,” the St. Louis Fed argues that “even though bitcoin and other cryptocurrencies may seem exotic, they share some qualities with regular currency.”
The post is based on an earlier Fed research paper that declared that bitcoin units have no intrinsic value.
“In economic terms, something lacking intrinsic value means it has no value of its own. But as the authors noted, ‘[s]tate monopoly currencies, such as the U.S. dollar, the euro, and the Swiss franc, have no intrinsic value either,’” the blog post stated.
The post goes on to explain that while digital currencies exist as data, cash is nothing more than a blend of 75 percent cotton and 25 percent linen.
“Neither is inherently valuable,” the post adds.
There is even the argument that bitcoin is actually better because central banks can devalue national currencies through inflation, while “no central bank controls the supply of bitcoin. Its price fluctuates, sometimes wildly. Yet there is an upper limit to its volume. As [the authors] note, its creation is scheduled so that the number of units can ultimately converge to a cap of 21 million.
And both currencies rely on trust to function as a media of value exchange. In the case of the dollar, that’s trust in the U.S. government and economy, while for bitcoin and other cryptocurrencies, it’s trust in computer code and developers.
Of course, crypto has been controversial, with many governments and financial institutions particularly worried about the increase in bitcoin scams since its surge in value last year. There is also fear it can be used for money laundering, capital flight, and tax evasion.