Below is a letter to the editor of the New York Times that I wrote to try to explain why BITCOIN can NOT be a money or currency in our economic system. Apparently the Editor did not like the message for he did not publish the letter. Perhaps people on this blog would like to comment on Bitcoins!
————–
March 1, 2014
To: Letters to the Editor Department
New York Times
TO THE EDITOR:
In his article “The Bitcoin Blasphemy” [N.Y. Times, Match 1, 2014], Joe Nocera implicitly raises the issue of why Bitcoin is thought of as a virtual currency when credit cards are recognized as merely a way of making payment in some form of government money.
What those who are promoting the notion that Bitcoin is some real, if virtual, money fail to comprehend is that all market transactions involving production and sales in any developed nation are organized through the use of that nation’s money denominated legal contracts.
Money (or currency), whether fiat or backed by gold or silver, is therefore defined as that thing that by delivery discharges all legal contractual obligations. Only the government, as the enforcer of contractual obligations, can determine that thing that is legally MONEY, i.e., what thing(s) will discharge contracts under that nation’s civil law of contracts. As Keynes once noted, in a money using, market economy, only the government can write the dictionary as towhat is money. Government money has value as long as all residents are law abiding.
Credit cards can facilitate payments but are not money. They can be used for transactions where the buyer promises to pay in terms of government defined money to the credit card company while simultaneously the credit card company pays government defined money to the seller.
Unless the government asserts that the tending of Bitcoins will discharge all legal obligations, Bitcoins cannot be money. Bitcoins are merely something that someone created and has claimed to be “as good as cash” by implying that a well organized and orderly market exists where every Bitcoin can be sold for the currency of a nation in which the holder of the Bitcoin wants to buy something via a legal contract. We require dollars and not Bitcoins to settle legal contracts in the USA. Financial assets such as General Motors stocks are also valued in terms of dollars every day on the Stock Market – but GM stock cannot be directly used to settle a legal contract. Instead GM stock must be sold for dollars when the holder of the GM stock wants to legally pay for the purchase of a good or service. [Stamp collectors also deal in stamps that can be bought and sold on an organized market – but the stamps themselves are not money. These collector stamps have value only because community of users [collectors] have decided to give them value.]
People should have learned a lesson from the crash of the so called “derivatives” financial assets that were sold to the public by investment bankers as being as “good as cash” . These derivatives were never virtual money, though they were created by the investment bankers. When the market for selling these derivatives collapsed in 2007-8, these derivatives became worthless pieces of paper, as even financial writers of the media recognized. The result was a financial panic globally as holders of these virtually assets suddenly realized they were not as good as MONEY.
With the collapse of the Mt. Gox market for buying and selling Bitcoins, when will editorial page writers warn their readers that Bitcoins cannot be money?