Krugman on Currency Roles, Legal Tender, and Bitcoin

Check out this article that dives into how we should view currencies, especially the USD and Bitcoin. Krugman echoes what I've been saying for ages: the USD isn't going anywhere as a measurement unit. Bitcoin is just another way to transfer value that’s tied to USD. Nobody really says, "I want 0.029827 BTC"; they just want a certain amount of USD in Bitcoin. Honestly, the thought that "Bitcoin will take over the USD" is just plain ridiculous. It’s like claiming that TCP/IP could replace the USD. If you're curious about Bitcoin's future and its role in how we transfer value, this is definitely a must-read.

Given Krugman’s track record with predictions, he’s not exactly someone you can rely on. Even though he’s a Nobel laureate, he’s got a whole host of failed predictions under his belt. I had a quick Google search and the first thing that came up was the AI result:

I don't pay much attention to his predictions, I just read his economic theory, which is solid. And this article is just an explainer about what currency is in the economic context. It's hardly controversial.

It is true that many people think in terms of dollars and this perception is not likely to change anytime soon. However, Bitcoin does not seem fundamentally dollar-based, nor do I see any logical reason for it to be. It can be used as a unit of value and to facilitate transactions by being pegged to the dollar, where it can be quickly converted back to fiat currency and dollars as soon as the transaction is completed! So, Bitcoin is not just a means of money transfer, but it is on a different level, where there is neutrality, security, freedom and financial transparency!

What other legal tender currency should be used in valuing the worth of bitcoin price if not the current dominant currency at this epoch, which is the USD. The Euro or any other currency could have being used if it were to be the most dominant currency so I see no sense making up a controversial argument on this. Common sense makes it obvious but at any period when the dollar loses it's position as explained in the article, it's definitely gonna lose being used in valuing bitcoin price, for a certain.

USD may not disappear from the global market, but it may cease to be used as a benchmark and a currency used globally in trade transactions. For example, if China's economy overtakes the US, why shouldn't the yuan become the reserve currency? I fully accept that the bitcoin (given its current and possible future value of $1 mln.) could be used for international settlements, but in the equivalent of the same dollars. That is, they might say, "give me $1 mln.", but they'll pay that amount in bitcoin (13.88BTC). Idiotic? We'll see who's truly idiotic when international settlements between countries start using bitcoin. Or when Iran starts charging oil carriers in bitcoin instead of USD. Regarding this, there are doubts between people, but on the scale of groups of people (countries), it seems probable (to a greater extent).

The USD or FIAT in general is not going to be going away, they are globally accepted as a means of payment, everyone is used to it and the systems are in place. It works perfectly for buying anything from a coffer to a car. Moving wealth and payments digitally and globally from peer-to-peer without permission as designed. The statement above is kind of stating the obvious.

Ending the dominance of the US dollar is not an economic solution, as there are no viable alternatives. The Chinese yuan is undervalued to facilitate the sale of Chinese goods, and therefore cannot replace the dollar. The same applies to the euro and other currencies. BTW, article link above does not refer to Bitcoin.

Have always had that some of the wild-eyed "Bitcoin will displace USD" wasn't so much fantasy as mistimed possibilities... talking about our lifetimes here. And yes, I understand some things happen faster than anyone rationally predicts, but for the dollar to lose its social/psychological/economic peg, it would take a huge, if not multiple, shift in global economy, of seismic if not catastrophic proportions. That then would have to lead to a chronic failure of trust in the US (and not Trump or a president or a regime) as an institution Even then, would take several other leaps of improbabilities for Bitcoin to supplant the dollar. Any rival would need to have established itself to be as liquid, as deep in capital (Bitcoin, really?), as... understood. So I don't need to read Krugman to understand this... but I note he doesn't rate what I feel could be potential supplanters (euro and yuan), though neither does he rate the dollar's resilience. P.S. Look at this forum, we're still talking, for the most, even when dealing with bitcoin, in dollar terms (as we logically would).

Krugman has been a strong critic of Bitcoin and so many other theories he raised up has seemed to have flaws mostly as regards him predicting the total collapse of Bitcoin being materialized in terms of the price going to zero.   However I agree with him on the economic logic he has of Bitcoin as a currency because for that he is right due to reasons that the logic of its existence, remains unbroken.

For the same reason all of the source code that runs the Internet won't ever change to Chinese characters: installed base. Everybody uses USD because everybody uses USD. And there's no reason not to. They are asking for certain amounts of USD using Bitcoin as the transfer mechanism. The standard of measurement is still USD, just like it is in basically every single Bitcoin wallet today. That's my point, and Krugman's. It's like feet in the US and meters in the rest of the world. Measurement systems very very rarely change (even when they are bad ones--wft is a "foot" anyhow?). And to be clear, he doesn't say it's "impossible" like I do, because it's theoretically possible. But for me, for all practical purposes, insofar as western civilization (and by extension, the infrastructure to support things like Bitcoin) survives, the USD isn't going away.

There is a small minority out there that truly believes that BTC will surely replace USD as the most dominant currency out there which makes zero sense, but it's their shared opinion plain and simple. Personally, I am part of the majority that don't believe it will ever happen. Why? Because USD has been the de facto standard currency globally for so long that replacing it with anything else would need a reset of our civilization like op pointed out. Even among current BTC holders, most treat it as a financial asset and not as a proper currency.

I never understood how the US (and the UK too, by the way) decided when/how to use metric and SI, and when not to. September 11th but... 4th of July, just one of the contradictions I don't get. One of the oldest examples I like to remember on how difficult it is to change measurement systems is how we break down a year or days in 12 hours, and then 60 minutes. It is so ancient that no one really even remembers how we ever landed on this system (and there have been attempts to change to decimal units). The possibility for US dollar being displaced I guess is where we differ, but since my take on it relies on a timeframe beyond that we will live to see, we are, in fact, on the same book, if not the same page =)

The measurement system example is really good. The US still uses feet and Fahrenheit. Why? Because it works well enough for everyday life. It's the same with the dollar. It doesn't have to be perfect. It just has to be what everyone is already using... Right now nothing comes close to the US dollar. The crowd that says "Bitcoin replaces the US dollar" kind of misses that point. Even if Bitcoin became the basis for payments people would still think in dollars. That mental way of pricing things is really hard to change. Bitcoin has not touched it. There is a fair question here. Why does one country get to control the worlds reserve currency? The US decisions affect everyone and all countries, also other countries don't have a say in it. That is a bit strange when you think about it. So the idea of a global currency makes sense. Whether that is Bitcoin or something else is another story.. The problem it points to is real.

Currencies do three things: 1. Provide a technical means of transfer. Bitcoin does this, but not as well as lots of other newer better products. USD does it (itself) with physical cash, which works but it obviously limited. Swift does this, credit cards do this, stablecoins do it... and FAST stablecoins do it best of all  . 2. Provide a store of value / investment. Bitcoin does this, but it is very volatile (which may be good/bad depending on whether it goes up/down). USD does this but it goes down in value over time (but very slowly and very predictably). 3. Provide a common means of measuring value that most people are used to. Only the USD does this in the US and even internationally USD is a very common standard that many people know about--and international business is almost always done denominated by USD. Bitcoin absolutely does NOT do this. People buy "$100 in Bitcoin", not "0.001329 BTC"). [rant] As for Fahrenheit... don't get me started  . Fahrenheit is a much better means of measuring temperature for the average human because it provides a nicely granular--but not too granular--way of describing the typical temperatures that humans beings exist in, i.e. between 0 degrees and 100 degrees. Zero F is very cold for us to be in, and 100 F is very very hot for us to be in. The scale has 100 increments, which is just under what humans can typically feel (you can probably feel the difference between 80 and 82 for instance), and is based on 100, i.e. percentages, which is very easy for us to understand. This all makes Fahrenheit perfect for everyday use. Celsius goes from 0C, which is sorta cold, but not super-cold, to 100C, which is... dead. The scale the average human will experience in their daily life will be between -10C and about 38C, which is 48 increments, which is not granular enough and is based an odd number, e.g. 48 (or even 50, but regardless it's unintuitive). This is why Celsius sucks as an everyday means of measuring temperature. Celsius is a perfect example of a product design by eggheads without any care for how the average end-user will use the system. They based it on the temperature where water freezes and boils, which is just not something you measure very often (most just look at the water and see how it's doing--they don't get out a thermometer). If you are scientist, use Kelvin. If you are a normal everyday person, use Fahrenheit. If you are the victim of the totalitarian regimes Europe who forced your citizens to use Celsius, well, I guess you gotta do what you gotta do... [/rant]

In the matrix, the currency of the head of the world is usually the dominant one. Chinese currency can't sustain the top position if it's pushed to become the dominant one. China needs the power and influence to back that up, Russia or anyone else can't give her that. It's not allowed, and things don't work that way If they decide that Bitcoin becomes the standard like gold was, it will not be too long before they reverse back to their fiats . This has been decided already, it will be impossible to change it except by our CREATOR. Bitcoin will be fiercely and powerfully defended. It is simply built as alternative to fiats

I wouldn't be the first to come up with crazy theories; intelligent people tend to have overactive imaginations, but sometimes they're wrong. After all, to err is human. As for money, there will always be a reference point: Bitcoin-dollar, dollar-local currency. Everything that can be bought has a frame of reference based on money. We haven't been in the barter era for centuries, so at this point, I dare say that this concept will never change.

Most people who use Bitcoin do not speak in terms like 0.00000030 BTC. They say 30 sats, using sats as the unit of account.If you do not understand that Bitcoin will eventually replace the US dollar, then you have not gone deep enough down the rabbit hole. You do not understand what money is, and you do not understand fiat currencies.You need to start studying this topic on a deeper level and go down the rabbit hole,instead of reading nonsense from clueless people on the internet.For a start, I recommend researching this text, which later became the foundation for a book on the same topic. https://vijayboyapati.medium.com/the-bullish-case-for-bitcoin-6ecc8bdecc1  I recommend starting with these books: On the Origins of Money by Carl Menger, The Bitcoin Standard by Saifedean Ammous, and Broken Money by Lyn Alden. Read this text by Nick Szabo, who is most likely Satoshi Nakamoto. https://nakamotoinstitute.org/library/shelling-out/#money Once you read all of that and study it more deeply, you will probably have that moment of realization my God, how did I not understand this before After that, you will want to explore even more. Reach out to me, and I will send you more interesting books and texts.

HAHA you had me until I read that line  . Nice one.