Karen Petrou: Starry-Eyed Kids Stumbling in the Cryptoverse

2023-03-02T10:55:51-05:00April 18th, 2022|The Vault|

One of the really sort-of sweet things about many who espouse the inevitability of digital assets is boundless hope for crypto domination derived from little knowledge of how the financial system actually works.  Last week, a prime example surfaced on Reuters, which touted a plan by which $10 billion of bitcoins would supplant the dollar as the global reserve currency.  Here’s to hoping, but the total USD money supply clocks in at close to $22 trillion, suggesting one might need more than a few billion to make even a bit of a dent.  Digital currency may well reign supreme, but it won’t be much more than a speculative bet until someone figures out how to integrate it into legacy systems and market, policy, and regulatory realities.

One might say that using M3 as the measure of the dollar’s power is unfair.  So, let’s use just currency in circulation.  That’s a lot less, but still a formidable $2.3 trillion, a number not only humbling to entrepreneurs, but also progressive Democrats crafting a new form of digital currency via the U.S. Treasury.

Our in-depth analysis assesses this “e-cash” legislation.  The idea here is to create a digital asset that is identical to physical dollars in all but physicality.  This may be a worthy effort, but it won’t be easy.

Take just one issue:  the bill mandates that e-cash be fully private and anonymous but also ensures effective AML enforcement.  Quite simply, that can’t happen.

Still, as physical-cash transactions shrink, the absence …