Former Federal Reserve Bank Examiner Mark T. Williams believes that if adopted in its current raw form, Bitcoin has the potential to undermine the longstanding bond between sovereign and its currency. His statement came when he was presenting his views on Bitcoin’s sovereign attack risk at the World Bank Conference.
This though is not a new issue as Bitcoin has long been considered a challenge for the State and its sovereignty to issue currency. However, as the point has been presented by the former Federal Reserve Bank Examiner, it has been taken into perspective. Williams seems to be concerned with how Bitcoin manages its own monetary base in a decentralized manner.
According to Federal Reserve Bank Examiner controlling the monetary base is an immense power and responsibility that is put into the hands of those who create the algorithm, protocol, manage the transactional ledger and mine virtual currencies. However, when this is given to non-State elements, there is heavy risk for sovereignty.
Williams says that governments and central banks are needed to provide economic stability for their citizens. According to him governments exercise a monopoly power on currency creation with the understanding that doing so will provide its citizens with a greater level of economic stability. Bitcoin can generate instability not just for citizens but for the country.
He also says that if Bitcoin were allowed to co-exist as ‘legal tender’ it could also create a situation where under Gresham’s Law ‘Bad money drives out good.’ According to him in such a scenario, bad currency i.e. Bitcoin would be used and good currency i.e. US dollar would be hoarded, creating greater economic instability.
Asks for International Oversight on Bitcoin
Though he believe that Bitcoin is an example of new technology that has clear promise, it also poses a multitude of risks to consumers, companies and sovereigns. According to him Bitcoin and its delivery system cannot be separated. The strength or weakness of the system is linked to Bitcoin the currency (engine) and Bitcoin the delivery platform (rails).
Williams adds that no matter how sturdy the rails, if the engine is not sound due to extreme market volatility, or artificial scarcity, the system cannot function at reliable and safe levels.
He suggests that to counteract the panoply of risks associated with virtual currencies such as Bitcoin, there needs to be greater regulation, international oversight, sovereign control and stronger consumer protection rules put firmly in place.
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