More on Bitcoin (Part I)

Bitcoin proves that the ‘interest’ paid by central banks on bank reserves (IOR) is not an “interest rate” but a helicopter drop to banks. Imagine that Bitcoin came with an additional feature, that all holders of Bitcoin would receive annually an additional coin for every 10 they currently hold. This would not miraculously turn Bitcoins into a liability! Nor is this an “interest rate”, which is a price required to induced lenders to hold a loan or a debt security. It would in fact be a transfer of money to the holders of money. Demand for goods and services would likely rise, and no one’s liabilities would alter a jot. Inflation may or may not rise depending on a host of factors. For the purposes of this argument, the only substantive difference between Bitcoin and say, dollars, is that dollar reserves are held by banks, and Bitcoin reserves are held by everyone who holds Bitcoin. Paying the holders of Bitcoin more coins is a helicopter drop. So too is transferring dollar reserves to banks who hold reserves.

About The Author

Eric Lonergan is a macro hedge fund manager, economist, and writer. His most recent book is Supercharge Me, co-authored with Corinne Sawers. He is also author of the international bestseller, Angrynomics, co-written with Mark Blyth, and published by Agenda. It was listed on the Financial Times must reads for Summer 2020. Prior to Angrynomics, he has written Money (2nd ed) published by Routledge. He has written for Foreign AffairsThe Financial Times, and The Economist. He also advises governments and policymakers. He first advocated expanding the tools of central banks to including cash transfers to households in the Financial Times in 2002. In December 2008, he advocated the policy as the most efficient way out of recession post-financial crisis, contributing to a growing debate over the need for ‘helicopter money’.

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