Private currencies

On the 25.th of July, 2019, Mike Orcutt wrote an article on Technology Review about private currencies.

The earth of the matter is: “We’ve had private currencies like Libra before. It was chaos. If private digital currencies start competing with national currencies, it could cause some of them to be more volatile. Almost 200 years ago, we saw something similar.”

The article was referring to the ’30s of XIX century, when 90% of money supply in the US had the form of private banknotes, difficult to trade outside the town where were issued and subject with fluctuating exchange rates

The key factor that keeps a currency stable is the credibility of its issuer. If the issuer is a private company, even extremely big, in case the business model declines or  people start to have doubts about the future viability of the company, the currency could lose value or even collapse. The same can happen in case of financial crisis: then it’s unlikely that any cryptocurrency can challenge stable national currencies.

On the other hand, a cryptocurrency like Libra might be a genuine competitor to government money in places that have less stable currencies, and that could have disruptive effects.

The result might be a modern version of the type of price volatility that private currencies caused in the US back in the 1830s.

 

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