Saturday, November 30, 2013
Bitcoins, Gold and Barter
Bitcoins have been in the news a lot lately. Their big attraction is that they are a currency free from government sponsorship. It's a peer to peer currency. There are other advantages, like the ability to easily cross borders. However, the big draw is the fact that they free from government or big bank intervention.
Then I got to thinking. Haven't we seen this before? Gold is not dependent on any government. People don't really care if gold has a Canadian maple leaf stamped on it, or is a Krugerrand issued by South Africa, or is a gold bar. Gold is gold is gold.
Bitcoins and gold also have something else in common. There's isn't enough of either of them to run a global economy. Gold and Bitcoins are both too scarce a medium of exchange for day to day economic activity.
Silver is a bit better in that respect as there's more of it and it's not as costly. The average Joe is more likely to get his hands on some. When the Argentinian economy crashed, a lot of commerce was done in old silver coins. Government money had failed so people had to use something else. There was exchange done in gold, but not nearly as much as was done in silver. Of course, back then, American dollars were stilled looked upon as something that held value, so that helped.
The Argentinian economy was pretty much an isolated case. The rest of the world was chugging along. What happens in a total International financial system crash? For that I'm going back all the way to the fall of the Roman Empire. There were other global financial system crashes since then, but nothing total. The framework was still in place. When the British pound failed, but the American dollar filled the gap.
The collapse of the Roman Empire was different. International trade itself collapsed. Everything got very local very fast. Nobody had any money. Economic activity was conducted by exchanges of goods and labor. Relationships were the glue that held society together.
Of course, I'm not qualified or licensed to give financial advice. As for me, I wouldn't mind having a good stash of any of these currency instruments. However, being a bit of a barbarian, they'd soon been turned into durable goods, land, or other things that are real to me. That's pretty much what I've done with the few dollars that have crossed my palm.