You might have noticed the world has been facing a bit of a fiscal and monetary problem of late. Bitcoin devotees are certainly aware of this as it has been the search for solutions which has stoked much of the recent interest in Bitcoin.
To some of these problems Bitcoin does offer a real solution. To others, not so much.
The big benefit of Bitcoin is its remedy to fiat currency and the inevitably ensuing inflation . Inflation is a terrible problem that impoverishes most people. The exception being the well placed interests – such as the big banks and their favored customers – who are first receivers of the newly invented money.
Bitcoin is a helpful remedy to this problem. Where fiat currency’s value is determined by the issuer (i.e., government), through monetary supply and interest rate control, Bitcoin’s value is decided by the market. A real, rather than fiat, currency is evaluated by the market for benefits, such as providing a reliable medium of exchange or store of value.
Here Jordan Morris Jersey , Bitcoin shines. Since no individual(s) or organization can arbitrarily decree the Bitcoin supply, it is not subject to the self-serving manipulation characteristic of government’s use of fiat currency. Consequently, Bitcoin effectively resists inflationary pressures.
Fiat currency though isn’t the only problem contributing to the present problems of the world economy. Another is fractional reserve banking. This is the practice by which banks magically multiply the amount of money in the economy.
Banking black magic though it may be, fractional reserve banking practices are ubiquitous. You know that banks make loans. Have you considered from where they get the funds to do so? They’re drawn of course from the savings placed in the bank by depositors. In principle this isn’t a problem, and the interest payments made possible will be attractive to many depositors. The problem is banks wanting to have their cake and eat it too. Thus, they perpetuate the illusion that the depositor’s money is still available to be withdrawn at will. (Otherwise, far higher interest payments would likely be demanded, if people couldn’t access their own money.) Obviously, though, the funds cannot be simultaneously in the depositor’s account and in the hands of the borrower.
There’s no doubt that this little bit of black magic does fuel economic growth, increasing monetary liquidity Joevin Jones Jersey , and benefits arise from this. At the same time, though, there is a price to be paid.
First, the practice contributes to inflation, by magically multiplying the money supple. Second, it contributes to exaggerated business cycles, as borrowers are misled about the actual availability of resources, due to artificially suppressed interest rates resulting from illusionary large money .