James Bullard, president of the Federal Reserve Bank of St. Louis, told the Wall Street Journal that cryptocurrencies should remind us of the past. Precisely of the monetary situation in pre-civil war America. He points out that private money has failed in these turbulent times. However, if Bullard simply thinks that Bitcoin & Co. are just simply the virtual form of private money, he has not remotely understood what Bitcoin is.
Money before the civil war
Bullard describes money that private banks issued in the time before the civil war in America. The currencies were valued differently and with relatively strong volatile exchange rates. To get rid of this uncertainty this money system was replaced successively with a more and more centralized approach. Until the creation of the FED in 1913 that provided the same US-Dollar notes that US-Americans still use today. The monetary system of that time is not really a success story and that is why Bullard uses it as an argument against Bitcoin & Co. According to him, both are private money and therefore destined to fail. However, there is just one little problem.
Pre-civil-war money was not really private
It is too simplistic to claim that money in the era preceding the civil war was private. It is true that private banks issued this money but these private banks had to respond to the policies of the United States or the Confederation and their own states. Dealing with secession, trade wars and the advent of a civil war was very costly for the economy of North-America. Of course, this burdened the private banks and they had to adjust their monetary policies to the political will of their local or state governments. In fact, a similarity that lets these currencies appear much closer to the contemporary Dollar than to Bitcoin or most other cryptocurrencies. Especially as the FED is a private institution.
Stable, unmanipulatable money
There are currencies out there that steadily lose their values. That have lost more than 96% of their value since their creation and that have a more than dubious future. We are talking not about cryptocurrencies here but, in fact, about the Dollar. And not only that, the newly created supply of the Dollar reaches people who work in the financial sector first. Wages for the average workers will not start to rise before the Fiat currency is already devalued. If something similar would happen with cryptocurrencies, we would call it rightfully a shitcoin. If you call Bitcoin private money, you have not understood it. It doesn’t belong to a single, private entity. It’s no use to confuse cryptocurrencies with that concept. It is something of its own that the world has not seen before.