According to a new publication of the Federal Reserve Bank of New York, Bitcoin is not a new type of money. The authors argue that it’s a new type of exchange mechanism, capable of supporting money transfer.
The well-known economist and author Peter Schiff backed up the claims, reiterating that once savers lose confidence in it, they will return to gold.
Bitcoin is Not a New Type of Money, Fed Says
According to Bitcoin’s whitepaper, Bitcoin: A Peer-to-Peer Electronic Cash System, BTC is a “purely peer-to-peer version of electronic cash” that would “allow online payments to be sent directly from one party to another without going through a financial institution.”
In a recent publication of the Federal Reserve Bank of New York, Antonie Martin, senior VP at the bank’s research and statistics group, and Michael Lee, an economist at the bank, argued that Bitcoin doesn’t represent a new type of money but rather a new form of exchange mechanism that “can support the transfer of monies as well as other things.”
To reach this conclusion, the authors divide money into three different categories, namely, fiat money, asset-backed money, and claim-backed money. They also look at three different types of exchange mechanisms: physical transfer, electronic transfer with a trusted third party, as well as an electronic transfer without a third party.
Commenting on the latter, the paper reads:
“… electronic transfers without a trusted third party […] are exchange mechanisms where the validation of transactions is decentralized, as is the case for Bitcoin and many cryptocurrencies.”
Going forward, the economists conclude that:
“The ability to make electronic exchanges without a trusted part – a defining characteristic of Bitcoin – is radically new. Bitcoin is not a new class of money, it is a new type of exchange mechanism and this type of exchange mechanism can support a variety of forms of money as well as other types of assets.”
Peter Schiff Weighs In
Commenting on the conclusions reached by Antonie Martin and Michael Lee, popular economist and well-known gold proponent, Peter Schiff, argued that:
“The Fed gets Bitcoin right. It categorizes it with fiat, in contrast to gold, that has real value. It sees nothing new in Bitcoin, just in the way it’s exchanged. As confidence in both traditional crypto fiat is lost, savers will return to gold.”
The Fed gets #Bitcoin right. It categorizes it with fiat, in contrast to #gold that has real value. It sees nothing new in Bitcoin, just in the way it’s exchanged. As confidence in both traditional and crypto fiat is lost, savers will return to gold. https://t.co/mm2Soxyw8g
— Peter Schiff (@PeterSchiff) June 19, 2020
Indeed, the paper did say that “Bitcoin is just another example of fiat money,” after outlining that “fiat money corresponds to intrinsically worthless objects that have value based on the belief that they will be accepted in exchange for valued goods and services.”
It’s worth noting, however, that prominent figures have compared Bitcoin to gold in its capacity to serve as a store of value. Even Jerome Powell, the Chairman of the US Federal Reserve, said that “it’s a store of value, it’s a speculative store of value, like gold.”