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Anthony Pompliano, or Pomp, is at it again. Some of you may recall his odd claims about bitcoin adoption in Argentina, which I took apart here . Well, the following tweet wandered onto my twitter stream a couple of days ago. For more, here is the Wall Street Journal. So let's get this straight. The Ohio state government is not accepting bitcoin as payment for taxes. Rather, it is sponsoring a gateway that allows business owners to offload their bitcoins on the market in the moments prior to tax settlement. Now that actual dollars having been obtained, the tax obligation can now be settled. Take a look at the FAQ at ohiocrypto.com . "At no point will the Treasurer’s office hold cryptocurrency. Payments made on OhioCrypto.com, through our third party cryptocurrency payment processor partner BitPay, are immediately converted to USD before being deposited into a state account." Here's an example of how this might work. Let's say an Ohio business owner has to pay $10,...

Two years ago, Indian PM Narendra Modi suddenly demonetized all of the nation's  ₹ 1000 and  ₹ 500 banknotes. His stated goal was to exact justice on all those holding large amount of dubiously-earned cash. But since these two denominations constituted around 85% of India's currency supply, the demonetization immediately threw the entire nation into chaos. After suffering from a nine-month note shortage, enough new notes were printed to meet India's demand for cash. But in the interim, what had happened to Indians' demand for cash? Did their experience with demonetization lead them to hold less cash than before, or did they simply revert to their pre-demonetization habits and patterns? I wrote an article in September 2017 dealing with these questions. With another year having passed we now have more data—so I'm going to provide quick update. My claim is that a demonetization gap continues to exists. This gap is evidence that the cancellation of  ₹ 1000 and 500s ha...

  Over on the discussion board, Oliver and Antti suggest that I read two essays from Alfred Mitchell-Innes. Here are a few thoughts.  A British diplomat, Mitchell-Innes was appointed financial advisor to King Chulalongkorn of Siam in the 1890s as well as serving in Cairo. He eventually ended up in the British Embassy in Washington where he penned his two essays on money. The first, What is Money , attracted the attention of John Maynard Keynes, while the second essay, The Credit Theory of Money —which was written in 1914—expounded on his views. Both are interesting essays and worth your time. One of Mitchell-Innes's main points is that all money is credit. This may have been a controversial stance back in 1914, when people were still very much focused on metallic money, but I don't think anyone would find it terribly controversial today. If we look at the instruments that currently function as money, all of them are forms of credit, that is, they are obligations or "cred...

While our modern monetary system certainly has plenty of detractors, one of its successes is that we no longer need the services of the local gold regulator . In the late 1700s, the job of a gold regulator was to assay gold coins to determine if they were of the appropriate weight and fineness, modifying (ie 'regulating') the coin if necessary. When he was done, the gold regulator stamped the coin with his seal of approval and put it back into circulation. The job of regulating coins may seem strange to us. But it was an ingenious way to cope with the lack of standardization that bedeviled monetary systems in the 1600 and 1700s, particularly in the colonies. There was no domestic supply of coins in North America back then, so settlers relied on a bewildering array of foreign coins as their media of exchange, each with its own weight and fineness, and most of poor quality. This included not only silver coins such as Spanish dollars, pistareens, and English crowns, but also a gam...

A few months ago Vijay Boyapati asked me to " steel-man " the bubble theory of money. The bubble theory of money, which can originally be found in a few old Moldbug posts , has been used by Vijay and others to explain the emergence of bitcoin and make predictions about its future. So here is my attempt. I am using not only an article by Vijay as my source text, but also one by Koen Swinkels, a regular commenter on this blog. Both are interesting and smart posts, it's worth checking them out if you have the time. Steel-manning the bubble theory of money and bitcoin 1. Unlike a stock or a bond, which is backed by productive assets, bitcoin cannot be valued using standard discounted cash flow analysis. And since it has no intrinsic uses, it can't be valued for its contribution to various manufacturing processes, nor for its consumption value. Rather, bitcoin is a bubble. Its price is driven by a speculative process whereby people buy bitcoins because they think that...

Earlier this month the following tweet elbowed its way onto my Twitter timeline: The tweet comes from Anthony Pompliano, aka Pomp, who works at Morgan Creek Digital Asset where he runs a cryptocurrency fund. So, have I been wrong all along about bitcoin? As anyone who has been reading me for a while will know, I've been skeptical of the bitcoin-as-money story. Rather than fulfilling Satoshi Nakamoto's vision as being a next generation medium of exchange, bitcoin has gone mainstream as  a new type of gambling technology—an exciting decentralized zero-sum financial game . This is a somewhat useful role, but let's face it, it's not quite as revolutionary as digital cash. But if Argentinians are indeed hailing rides and paying drivers directly with bitcoins, as Pompliano seems to be saying, then maybe I've been too quick to dismiss the bitcoin-as-money scenario. Paying for stuff is exactly what Satoshi Nakamoto intended bitcoin to do, right? So I dug further into the t...

Nations never experience year-over-year declines in cash in circulation. Sweden (which I wrote about here , here , and here ) is one of the rare exceptions. India is another, but this was due to its notorious botched demonetization attempt (which I wrote about here , here , here , and here ). But now the UK seems to be joining this small group of outliers. Why does a nation's cash in circulation generally grow consistently from one year to the next? While economies do experience the odd recession, in general they are always improving. Improving economies coincide with more demand to make transactions, and for this the public needs to have greater amounts of cash on hand. There is a counter-cyclical element to cash holdings. When recessions occur, people often turn to unofficial sectors of the economy to make a living, and this often requires cash. The last explanation for the steady growth in cash outstanding is inflation. Let's assume an inflation rate of 10%. Someone who gene...