Value for Money
    Category: Column By : James Kallman Read : 996 Date : Monday, July 08, 2013 - 00:40:03

    The furor surrounding Bitcoins in recent months offers some interesting insights into the continuing search for a viable yet stable currency to measure up to the demands of the modern world. In reality, Bitcoins are in themselves worthless, as its drawing power largely stems from the finite limit to their availability and, perhaps more importantly, lack of official regulation.

    Of course, value has always been an indefinite term, decided not by any official edict but rather the perception of the individual. One supposes that early hunter gatherer groups considered individual skills to be equal in contribution towards the group's continued existence, the skilled flint knapper providing the tools with which the hunters brought down their quarry. With the domestication of animals and interaction between groups of wandering herders, however, we know that livestock were used as a medium of barter.

    The coins that first appeared in the Western world were made from bronze, silver or even gold and thus had some intrinsic value. The foresight of using this valuable coinage can be seen by the fact that in the 19th century, when western nations knocked on China's door to purchase tea, payment was required in gold. The Chinese had experimented with paper money, but this resulted in severe inflation and its discontinuance around the middle of the 15th century, over 200 years before the Massachusetts Bay Colony became the first government in the western world to directly issue paper money.

    Of course, there's nothing wrong with paper money if it's backed by something of intrinsic value. But when Switzerland became the final nation in 2000 to cut ties to any gold-reserve requirement—the U.S. having already done so in 1976—the world's governments have been free to print money at will to support their financial policies.

     

    While there are pros and cons for the gold standard, continuing economic turmoil, particularly in the West, has fostered a growing distrust of the banking industry as a safe haven for storing wealth. In part, this is due to banks moving away from their traditional role of making conservative investments into more speculative trading activities. While bankers may have been far from blameless, they too have suffered from a change in the playing field in that sovereign debt is no longer as trustworthy as it used to be.

    Termed a peer-to-peer electronic cash system in 2008, the Bitcoin protocol was initially hailed by some as being the answer, and indeed has enjoyed limited success. Nevertheless, this has not been without problems, including exchange rate volatility that has seen wild swings, which hardly meet the criteria for stability. Moreover, the very anonymity of its transactions has attracted those with the most to gain from hiding their tracks, such as drug dealers, money launderers and tax evaders.



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