Susan Athey is one of my favorite economists. I hadn’t realized that she was a go-to person for journalists who want some perspective on Bitcoin until seeing her when she came to the University of Michigan last week.
Michael Hiltzik's Los Angeles Times article “Bye-bye, bitcoin? The crypto-currency’s price agonies intensify” has a quotation from Susan Athey that closely matches my view:
For those who use bitcoins as transactional instruments–that is, to move money in and out of currencies or across national borders without financial authorities interfering–the price might be irrelevant. That’s the view of Stanford University economist Susan Athey, an expert in crypto-currencies. Athey told us last year that if you’re selling goods in bitcoins and exchanging them for dollars, or trying to transfer your wealth from yuan in Beijing to euros in Frankfort, “in principle, you need to only worry about the exchange rate for 10 minutes…. The point is that we have a new technology that allows any individual in the world to send value from one place to another instantly, in a way that’s secure and verifiable.”
You can see my take on a closely related point in answer to a question at the Cryptocurrency conference I spoke at last February in the video post “Cryptocurrencies: Is the Dollar Doomed? Video of a Discussion Between Miles Kimball, Justin Wolfers and Matt Yglesias on Electronic Money.” At that conference and in the associated Slate article “Governments Can and Should Beat Bitcoin at Its Own Game,” I emphasized that central banks will continue to be needed in order to manage the unit of account for price stability and for keeping output close to its natural level. And to put a point on it, because of its inevitable price fluctuations relative to other goods and services, Bitcoin would be a terrible unit of account. However (as I said in answer to a question) there is no serious monetary policy problem raised by having a non-governmental such as Bitcoin in a widespread medium-of-exchange role, as long as it does not become a unit of account. Since whenever Bitcoin is used, there is a computer handy to do the conversion between the number of Bitcoins and the number of dollars or other unit of account, I don’t see any reason why the unit of account function and medium-of-exchange function can’t be separated in this case.
Students in introductory economics courses traditionally learn that the three functions of money are as
- store of value
- unit of account
Of these three, what is most important for monetary policy is the unit-of-account function–or perhaps if more closely analyzed, the closely related function of being the unit of price stickiness. Monetary policy may require some medium-of-exchange and store of value aspect to official money, but it does not require an official monopoly, or even near monopoly of the medium-of-exchange or store-of-value functions. But monetary policy would be very difficult if a central bank did not have a near monopoly on the unit of account function within its region.