How long before nation states buy bitcoin?

[Duke of Marmalade]

The interviewer missed the opportunity to then ask him about bitcoin.

Obvious answer. We have plenty of BOHA.

 

[tecate]

The interviewer missed the opportunity to then ask him about bitcoin.

Somehow I doubt Leo would be as well informed on the subject as this politician when interviewed yesterday.

 

[tecate]

If any state body buys bitcoin directly it would be the Central Bank as part of reserve management policy.

The Central Bank already holds gold. The NTMA does not, and never would.

What would stop the NTMA holding a couple of percent in btc via a custodian?

 

[NoRegretsCoyote]

What would stop the NTMA holding a couple of percent in btc via a custodian?

Its legal obligation to seek a rate of return

 

[WolfeTone]

Its legal obligation to seek a rate of return

I don't see anything in that that precludes NTMA from buying and holding bitcoin.

 

[NoRegretsCoyote]

I don't see anything in that that precludes NTMA from buying and holding bitcoin.

Then read it again.

First obligation is to support economic activity in state.

If not possible, to hold assets with a rate of return.

Bitcoin, which pays no interest and has a non-trivial risk of being worth zero in the near future, is in neither category.

 

[WolfeTone]

First obligation is to support economic activity in state.

Yes, but that is all a matter of interpretation. I recall the NPRF which was set up to deal with the projected increasing costs of pensions.
But at the flick of a switch, this fund was raided to support increasing government deficits.

Bitcoin, which pays no interest

But its prospective capital appreciation is surely a legitimate reason to hold some (the Minister of Finance just needs to amend the Act).

has a non-trivial risk of being worth zero in the near future

It has had a non-trivial risk of being worth zero in the near future, for 10yrs and more.
It also has a non-trivial risk of being worth substantially more than it is today.

I'm not suggesting betting the house on it. We are a €250-300bn economy?

An initial and modest €250-€500m purchase would be reasonable.

 

[noproblem]

Is there a mechanism by which the Central Bank could buy Bitcoin, or its equivalent, but not directly buy it?
Then again, maybe the Euro will turn digital at some point as maybe all currencies will

 

[tecate]

Is there a mechanism by which the Central Bank could buy Bitcoin, or its equivalent, but not directly buy it?

There are bitcoin ETN/ETP/ETFs in various countries (although still not in the US) or trusts such as the Grayscale Bitcoin Trust. That said, why wouldn't you want them to buy direct? There are insured, regulated custodians who can facilitate that for them.

maybe the Euro will turn digital at some point as maybe all currencies will

There's no doubt that they will eventually - they're all working on digital currency projects right now. However, they're just an extension of fiat currency - which is entirely different to bitcoin. If anything, their advent will make people more comfortable in owning bitcoin.

 

[DublinHead54]

What would stop the NTMA holding a couple of percent in btc via a custodian?

Lol are my posts just being ignored?

NTMA already hold Square and Paypal so you could argue they have some indirect exposure to BTC. They would just have to go through their internal governance process to get approval to purchase BTC directly, or indirectly (ETFs / Funds) etc. As mentioned before it would likely only be a small portion of their investment pot.

There are bitcoin ETN/ETP/ETFs in various countries (although still not in the US) or trusts such as the Grayscale Bitcoin Trust. That said, why wouldn't you want them to buy direct? There are insured, regulated custodians who can facilitate that for them.


There's no doubt that they will eventually - they're all working on digital currency projects right now. However, they're just an extension of fiat currency - which is entirely different to bitcoin. If anything, their advent will make people more comfortable in owning bitcoin.

@tecate you are right, there is no reason why you wouldn't want to buy them direct. However, at the minute it comes down to infrastructure and control. Having worked in a global investment bank we tried to onboard clients to get exposure to BTC futures a few years ago and there was an incredible amount of bureaucracy and committees we had to go through before ultimately failing at that point in time. On the infrastructure side the NTMA doesn't have the controls in place to purchase directly, which can be offset by custodians but this still would require a whole new control process to be put in place. So right now, I think state bodies will follow their processes and get exposure via synthetic products or exchange traded products.

On the CBDC as mentioned before, this is a topic close to my heart and you are right it's just an extension to the Euro for example. It is really more of a technology solution than a change in monetary policy although a digital currency does pose some interesting questions on the need for financial intermediaries. Ultimately cash is already pretty digital ( <10% of the circulating currency is physical), most people in Ireland can go day to day using their card only.

 

[Duke of Marmalade]

I believe that a significant part of the demand for physical money is in fact the black market.
Just as the requirement for money to have intrinsic value impeded monetary policy in the past so today the requirement for physical cash is an impediment as it effectively sets a floor to the interest rate on cash which in turn can lead to hoarding. I am sure that at some stage all money, qua medium of exchange, will be CBDC.
They say that one of the features of any money is to be a store of value. I would want to qualify that. Its primary purpose is to be a medium of exchange. That requires some sense that if you sell your goods or services for a € today, you expect that you will be able to exchange that € for goods and services at some time in the future - ergo some store of value is a requirement. But this need only be relatively short to medium term. The ECB sets a target for money to lose 2% of its value every year. That is not happening now because of the "floor". Without the floor the achievement of that target becomes much more manageable.
@tecate will scream that I am advocating that the authorities can rob the populace of their hard earned money. Not at all. Money should not be held as an investment, but merely as a medium of exchange. In a healthy economy people will be able to invest their savings possibly through financial intermediation.

 

[WolfeTone]

I am sure that at some stage all money, qua medium of exchange, will be CBDC.

And this is not a concern for you?

That aside, it could only ever happen if CBDC operated within the parameters of a monetary system that is not, or could not, be subject to 'policy' change.
That CBs take on the mantle of issuing digital currency suggests very strongly that the parameters would be subject to change - otherwise why do it?

This is all well and good if you are the beneficiary of such changes, but if you are not, then there will always be demand for alternative forms of money.

 

[Duke of Marmalade]

And this is not a concern for you?

That aside, it could only ever happen if CBDC operated within the parameters of a monetary system that is not, or could not, be subject to 'policy' change.
That CBs take on the mantle of issuing digital currency suggests very strongly that the parameters would be subject to change - otherwise why do it?

This is all well and good if you are the beneficiary of such changes, but if you are not, then there will always be demand for alternative forms of money.

Not sure of your point. I wasn't specifically ruling out bitcoin, in fact I am a bit off topic. Just remarking that the need for physical money will become as unnecessary and counterproductive as the need for intrinsic backing once was. Not sure in this world how auntie would give a few bob to a 6 year old for a birthday present.

 

[WolfeTone]

Not sure in this world how auntie would give a few bob to a 6 year old for a birthday present.

Tokens, digital coins.

 

[tecate]

I believe that a significant part of the demand for physical money is in fact the black market.

I agree that it is. There are folks who don't want to pay their dues or those that deal in illicit goods/services. However, it's important to note that what one regime deems to be 'illicit' could be a basic human right in another. For example, I may want to donate money to the End Statist Cults Committee. You could say I have some strange interests but if we believe in a healthy democracy, then all has to be embraced. No problem in doing that in cash (and possibly in bitcoin*) but if in CBDC, those behind that currency can see that I made that contribution forever and a day. I could find myself on a 'list' - or they could decide then and there - at the tap of a button - to erase my CBDC funds.
There isn't anyone on the planet that should want that scenario to unfold.
Secondly, whilst there may be folks that don't want to pay their dues, doesn't black market activity shoot up when taxes become overbearing and downright unreasonable? This is kind of related to the first point. Some might think that government couldn't possibly put a foot wrong - but that's not what history and experience tells us. I'm just putting that out there - I'm not advocating for people to fail to contribute for the upkeep of the state.

@tecate will scream that I am advocating that the authorities can rob the populace of their hard earned money. Not at all. Money should not be held as an investment, but merely as a medium of exchange. In a healthy economy people will be able to invest their savings possibly through financial intermediation.

It would be wrong of me to disappoint Duke - so let the screaming commence. I have not called out fiat money on its inability to act as an investment - i've called it out on its inability to hold its value. As regards the notion that people can go and invest - shouldn't systems be setup for all of the people - not for a minority? By that I mean that the majority of people are not financially savvy. It's not a reasonable expectation to assume that everyone can get ahead of this stealth tax. Only the owners of assets have any chance of staying ahead of that game - seeing as we may have CPI of 2% but specific asset price inflation way in excess. That's not an equitable system.
I don't think its unreasonable to seek to have a system where people's hard earned savings hold their value. The availability of this system to the populace is also going to make the governments and CBs behind fiat currencies much more responsible. They can't steal from the people or indulge in negligent policy with the expectation that they can wash that all away with a wave of inflation. In that instance, you're talking about improving the lives of millions of people. Ireland may be relatively stable but there are plenty of places in the world that are not.

That CBs take on the mantle of issuing digital currency suggests very strongly that the parameters would be subject to change - otherwise why do it?

The ultimate in financial surveillance and supreme ability to manipulate. They can insist that you are rewarded for spending funds on certain things, punished on others. They can potentially 'expire' your funds if not used within a certain time frame.

Just remarking that the need for physical money will become as unnecessary and counterproductive as the need for intrinsic backing once was. Not sure in this world how auntie would give a few bob to a 6 year old for a birthday present.

If we do away with cash, we will need a digital alternative. That alternative is bitcoin. We'll have CBDCs - but we'll need an alternate system to run alongside them - and keep them in check.

Not sure in this world how auntie would give a few bob to a 6 year old for a birthday present.

They'll both be fine - they'll both have a Breez Wallet and the ability to ping a few satoshis from one to the other within a couple of seconds.

*Bitcoin doesn't ensure privacy right now - but there are ways to use it anonymously. There are also software updates which could potentially be applied to make it truly anonymous.

 

[DublinHead54]

Cash offers more privacy than BTC, so BTC is not a direct replacement for Cash.

 

[WolfeTone]

Cash offers more privacy than BTC, so BTC is not a direct replacement for Cash.

That depends. Two people walking through an airport one with a 100bitcoin on his phone, worth €5m of bitcoin and the other with €5m in cash.

Who is more likely to have their privacy interrupted?

 

[Duke of Marmalade]

Interesting and somewhat less confrontational discussion on CBDC, albeit off topic.
I am thinking outside the box.
I am seeing money as nothing more or less than a medium of exchange - not something that makes the world go round. Of course those who manage the money are in a powerful position as are those who manage our water supply and our electricity supply etc. but that is a matter for our political system to ensure that these powerful central authorities serve society.
The zero bound to interest rates is currently hampering monetary policy. No matter how easy the CB make monetary conditions they can't generate that required boost to activity which would be reflected in a 2% inflation. People are happy to hoard their money even at 0% interest. Physical cash is a hindrance to the CB inducing the populace to start spending.
Talk of people deserving to earn a return on their hard earned savings has a nice morality ring to it but that is not why traditionally savings earned a return. Savings earned a return because some folk can invest your money today to earn an economic return. In a world where money had been reduced to its essential function of being a medium of exchange the CB will be endeavouring to ensure that there is no hoarding of money - if necessary by negative interest rates even for the populace.
Folk who then accumulate more money than they need as a medium of exchange can lend it to those who need it now and can earn a return on it. This would mostly be done by owning deposit accounts with the banks. Banks will pay interest on those deposits because it has takers who will pay even more interest to have use of those funds now. Just like the old days. The reason this is not happening now is because the CB monetary policy is channelled through the banks. Why would banks pay punters 2% when they can borrow from the CB at 0%?
I see a brave new world where it would be perfectly consistent for the CB to be charging punters 4% on their money whilst banks are paying 2% on deposits and entrepreneurs are paying 5% to banks on their loans.
I would even allow bitcoin to be used by the cultists and criminals. (sorry for the sour note, but I really would like to see that link from @tecate again.)

 

[tecate]

Of course those who manage the money are in a powerful position as are those who manage our water supply and our electricity supply etc. but that is a matter for our political system to ensure that these powerful central authorities serve society.

Time and time again, they've been proven to serve themselves....going as far back as the Romans shaving coins. I don't trust them - you have said in the past Duke that we must trust them. I don't agree - not when we have a better mechanism that assumes we can't and shouldn't trust.

Interesting and somewhat less confrontational discussion on CBDC, albeit off topic.
The zero bound to interest rates is currently hampering monetary policy. No matter how easy the CB make monetary conditions they can't generate that required boost to activity which would be reflected in a 2% inflation.

By all accounts, they won't be able to win that battle as tech is leaping ahead exponentially. In their debasement tinkering in the short term though, it's likely that they'll oversteer and we'll end up with considerable inflation. We already have it in terms of assets.

People are happy to hoard their money even at 0% interest. Physical cash is a hindrance to the CB inducing the populace to start spending.

Yeah - this. Exactly this, Dukey. This crap show needs to be dismantled. Firstly, who is happy to hoard their money knowing that its being debased!...except maybe those that don't have a full understanding of that.
Secondly, what a system we've built - where it requires people to be encouraged to buy any old crap - to fuel the economy. Bitcoin wrongly gets a kicking on the energy/environmental front when it's this current economic system that is driving environmental problems with people being induced into buying rubbish for the good of the economy. Meanwhile, we're actively encouraging people to be up to their eyeballs in debt while responsible people who work hard and save are punished. Who dreamt up this nonsense?

Talk of people deserving to earn a return on their hard earned savings has a nice morality ring to it but that is not why traditionally savings earned a return.

You're misrepresenting what I stated. I said that people have a reasonable expectation that their money holds its value - not earn a return - simply hold its value. If they want to go beyond that, they can invest or lend it out, etc.

I see a brave new world where it would be perfectly consistent for the CB to be charging punters 4% on their money whilst banks are paying 2% on deposits and entrepreneurs are paying 5% to banks on their loans.

That's the old world. The new world - which we're already seeing early signs of - is one where people have the option to opt out of that nonsense and hold their funds in a parallel and separate system where what they've worked hard for retains its value relative to monopoly fiat money. Right now its speculative investing. When it settles, that's exactly what it will do.

I would even allow bitcoin to be used by the cultists and criminals. (sorry for the sour note, but I really would like to see that link from @tecate again.)

Always a pleasure, your Dukeness - never a chore!
As regards you 'allowing' bitcoin - that's not a power that you or anyone else has. It's there for anyone to use if they want to...even you Duke.

 

[NoRegretsCoyote]

@Dublinbay12

Holding bitcoin directly or via a fund is simply not within the NTMA's legal mandate.