No explanation, no analysis, no evidence needed.
In a speech Wednesday at the Ekonomiska museet in Stockholm, Anna Seim (deputy governor of the Riksbank, Sweden’s central bank) spoke at length about money. Her intricate description of the banking system is good and insightful — though not for the reasons you’d expect — and Bitcoiners can learn a lot from it about the monetary system we’re here to supplant.
What She Said About Bitcoin Was Both Shocking and Astonishing
Bitcoin is so unimportant to the establishment that it can be denounced by mere words.
After briefly describing the three functions of money we’re used to from economics textbooks and Bitcoin books alike — medium of exchange, store of value, unit of account; though, interestingly, she inverts the order by putting store of value at the top — she brushes bitcoin aside in one short sentence.
Introducing the topic by saying that the digital-money split between private and public institutions is heavily discussed these days, she doesn’t want to talk about bitcoin, “Because it can’t be classified as money according to any of the three criteria above.”
Fiat and its money-printing mechanism she then describes expertly and at length: bank money is just made up, created when banks make loans; fiat money is backed by nothing but confidence in the central bank and the wider economy; central banks are tasked with keeping pricing rising “at a moderately high level.”
Straight from the horse’s mouth:
“Fiat money has no intrinsic value but derives its value from being accepted as a medium of exchange”
Money’s underlying “commodity” has gone from gold to confidence; “it contains information about with whom value is to be found, and how much.”
She brings up an exciting paradox in the use of money, using the age-old economics example (harking back to Adam Smith) of a baker selling bread. He’s paid with money, which functions as evidence that the baker has contributed something valuable to society; he can go on and use the money in exchange for other goods and services.
While money is a record-keeping device — a record of past value created and supplied (see, for instance, the classic article in monetary economics, ‘Money is Memory’) — it also allows you to forget its history: The next guy in the monetary line doesn’t need to know what good or service the previous person supplied the current holder.
“The money itself is enough evidence of value.”
…or at least, that’s how money is supposed to work. In the age of KYC (know-your-customer) and excessive (yet impotent) anti-money laundering efforts, permissioned money in the banking system certainly does not forget its history. (Bitcoin doesn’t really do this either, as evidenced by the recent hacks/heists and the very public movement of funds.)
What makes money work in the end is all about trust, she admits. “New types of money, new technologies and new issuers mean we must find new ways of establishing and maintaining that trust.”
True. And that trust is betrayed, repeatedly. Satoshi said so at the start (Letters 10:15-18), and we’re saying so right now.