As the US Fed prints new dollars, Dennis Parker, a Bitcoin expert has suggested that investors should now buy Bitcoin. Since the middle of September 2019, and at the time of writing this, the US Federal Reserve has printed $210 million, which is more than the entire market cap of Bitcoin.
Parker has pointed out the stark difference between USD, the leading fiat currency in the world, and assets like Gold and Bitcoin. He especially points to the fact that the supply of assets like gold and Bitcoin can’t be inflated, therefore, the investors get real value when they buy them.
The US Fed has made this move as part of its Quantitative Easing (QE) strategy, and the central bank is buying up US government bonds. The objective is to provide a stimulus to the economy. Such a move can prompt questions, and it did.
Printing money: A questionable idea
To be fair, central banks all over the world resort to printing money some time or other. Such moves come with an express objective of boosting demand in the economy when it shows signs of sluggishness.
However, such moves are questionable. If the economy of the country in question doesn’t show a tangible rise in meaningful economic activity, then printing more money can cause inflation.
The economy of a country is not an isolated aspect, rather, it’s closely intertwined with everything else that happens there. If a country has robust governance, sound law enforcement, an alert judiciary, freedom, and a culture of innovation, then the economy of the country grows.
On the other hand, a country replete with corruption in every walk of society inevitably suffers from stagnant economic growth or even economic contraction. These are systematic challenges in a country, and printing money can’t resolve its economic woes.
A central bank of a country can only justify the act of printing money if the government of the country enjoys the confidence of its citizens. The citizens know that the government has enough track record of good governance to back that newly printed money.
When a national government doesn’t enjoy the trust of its citizens, then the central bank should desist from such moves. Such countries can’t tide over their economic challenges just by printing more money.
Why the proponents of Bitcoin question printing money
As Parker questions the move of the Fed and asks investors to buy Bitcoin, let’s analyze what prompts him. The origin of Bitcoin has a lot to do with the stance Parker and other proponents of Bitcoin take about printing quantitative easing (QE).
Bitcoin emerged as a result of the effort by Satoshi Nakamoto, a pseudonymous person or group, right after that 2008 financial crisis. The 2008 crisis prompted many central banks to resort to QE.
In other words, they printed more and more currency and pumped liquidity in the market. The objective of these central banks was to prevent a recurrence of the Great Depression of the 1930s. They also reduced interest rates drastically.
The result was a devaluation of the currency in many countries, as countries tried to remain competitive by making their products and services cheaper. As governments rushed to bail out large banks, the central banks printed even more money.
The combined effect of all of these was a net transfer of debt to the public purse and this debt was very large. Since this amounted to a large future taxpayer liabilities, many people considered these acts as unjust.
Nakamoto created Bitcoin to address this sense of injustice, and the design of Bitcoin rules out any scope to artificially inflate its supply. Bitcoin has an upper limit of 21 million. This hard-coded upper limit makes it a bit like gold, whose supply can’t be artificially inflated.
Is Bitcoin the future?
As the US Fed prints new dollars, questions about the soundness of such moves will grow. On one side, there are global economic uncertainties looming. On the other side, people are questioning their governments and central banks over their economic policies.
Parker isn’t alone to suggest that people should buy Bitcoin. Even the governor of the Bank of England believes that digital currencies could replace fiat currencies in future. Will they?