Are bitcoins the coming currency of the digital age? Can they provide an effective alternative to the state’s money monopoly? In my latest podcast, Ron Paul discusses the new currency that everyone’s talking about.
Goyette: Will bitcoins prove to be an enduring alternative to the state’s monopoly on money, and if so, is the state actually going to stand by idly and let this challenge, or any other challenge to its money monopoly continue to spread?
Paul: I’m not sure anybody has a final answer on that. Many believe it will become a valid currency because people are using it for financial transfers, and it may be a convenient vehicle for that. I’m suspicious. I don’t fall into the category of people who say this is the solution, this is going to replace the dollar. One time somebody quoted me in the media as saying ‘I believe the bitcoin was going to destroy the dollar.’ That’s not quite my position.
But the bitcoin could be a participant in a process where the dollar destroys itself, or that is, the Federal Reserve policy destroys the dollar. Then people will have to leave the dollar and go into something else. So when we talk about bitcoins or even gold or commodity prices, we’re always talking about the value of the dollar and what’s going to happen.
And most of us who have been concerned about it realize the dollar is not going to get stronger over time; it’s very vulnerable. So people in the electronic age are coming up with these creative schemes to replace it. The reason I’m hesitant to say that the bitcoin sounds like the answer, is because it’s hard for anybody to tell me what it really is.
For instance, if you had never heard of gold as money, I could show you a gold coin. And you could feel it, and then we could look at some history. That’s not the case for the bitcoin. It has functioned for transferring some funds around, but it’s also very volatile. Sure, the dollar is volatile, gold is volatile, but bitcoin is even more so. But the main interest I have in it is making sure it’s legal, and if people in the market choose it, they ought to be able to …
One term the Fed officials and Treasury always used when we talked to them about the devaluation of a currency, inflation going up, the value of the dollar going down, was: Orderly.
If it’s orderly, nobody panics. So if you lose 2 or 3 percent of the value of your currency, that’s orderly. Matter of fact, that’s the Fed’s and Treasury’s goal. They would be delighted with, as measured by the CPI, your money losing value at 2 or 3 percent a year. But it’s still wrong. It’s been done too often over the course of history.
We have a bit of history on what people do when a currency gets disorderly. Like our Continental Dollar or the Confederate Dollar or the Vietnam currency at the end of the war. They run from it and they’ll take anything of value. After WWII the same thing happened. They would even resort to using cigarettes. In our early history, they used tobacco as money.
When people can’t be confident about something, they go to something of real value. That’s why bitcoin is around, to offer an alternative. Well, I’m a skeptic on that. I certainly think it’s fascinating. I try to keep up with it the best I can. But I would feel much better having some gold coins in my pocket than a little computer that I can carry around and recover my bitcoins. I wouldn’t feel very secure doing that, and I imagine there are a lot of other people who would feel the same way.
Goyette: One myth that I feel should be exploded for the protection of people who believe that bitcoin is some sort of crypto cyber currency that creates no trail, is that it actually does. Somebody said the other day that it’s an accountant’s dream because both sides of the ledger, the balance sheet, are filled in. And there’s nothing in bitcoin that offers promises for people who have had enough of the government’s plunder to make their transactions totally and securely anonymous.
Paul: Yeah, and this might well be why the feds are looking at it carefully, because one of the motivations for a lot of financial controls has always been to collect taxes, whether they’re sales taxes or income taxes. So this will be something that they’re going to be watching. But right now I can’t see where this is the solution. To me, this is not the solution to our problems of the monetary system that we face today.
Goyette: As you’ve pointed out, a real obstacle to the ongoing prosperity of the American people in the event of a currency crisis or the certainty of a currency crisis is the legal tender laws. We need alternative currencies. Ninety years ago, the Germans needed alternative currencies; many of them survived fairly well using the British pound. People in Zimbabwe needed alternative currencies and used the U.S. dollar despite its shortcomings, as a superior alternative, just five years ago. People in Argentina need alternative currencies today. And the legal tender laws in the United States prohibit the development of competing currencies far beyond bitcoin that can prove themselves in the market place over time. So that in the event of a dollar crisis, we have legal tender laws that act like sand in the gears of commerce. The wheels of commerce can grind to a halt in this country, and really America can be relegated to a second-class commercial status in the process.
Paul: I’ve thought about that, and while in Congress, not only did I have a bill to legalize competing currencies, it was to repeal the legal tender law so that you weren’t breaking the law. The other thing that I would have them do, if they would listen to my advice and look at my legislation, would be that you would have to remove taxes on gold and silver.
Let’s say that history proves that gold and silver will still be the option, and not bitcoin. But right now, it’s against the law, because the government has a monopoly, plus the legal tender laws. They need to collect the taxes. And that’s how they prevent it.
You want to legalize the competition, and yet today if anybody does that they can get into very serious problems.
Goyette: Well to sum up, Dr. Paul, it seems to me there’s a perfectly adequate alternative to paper money already, one that has passed the test of time for thousands of years. If people would like to test bitcoins over time with their own money, I’m perfectly happy to let them do it, I’m just not really interested in testing it with my money.
Paul: That test would take a long time. Because you know the way the Austrian economists explain it: Money has to originate in the marketplace and the people make the choices. Governments just don’t sit down and say well we’re going to print Federal Reserve notes and it’s going to become money. No, a currency has to originate in support from the people. But the likelihood of competing with that decision made by millions and millions of people over probably 5, 6,000 years, people have always chosen gold. …
The whole thing is, if the bitcoin really served as an alternate currency, the Feds wouldn’t allow that to happen. I just do not believe that they will ever give up their monopoly.
For your Freedom and Prosperity,