Bitcoin as Money, a proprietary research paper published internally by Goldman Sachs, argues, “Our working assumption is that long-run cryptocurrency returns should be equal to (or slightly below) growth in global real output—a number in the low single digits.” Eventually, “digital currencies should be thought of as low/zero return or hedge-like assets, akin to gold or certain other metals,” they claim. As a money in the way most people understand it, Goldman is open to the idea “in theory.”
The US legacy bank of banks, Goldman Sachs has been around 150 years. It existed decades before the Federal Reserve, and it has withstood many financial fads. Goldman employees go on to run the world, occupying the highest offices in governments. When it speaks on a subject, markets listen.
Goldman researchers Zach Pandl and Charles Himmelberg explain how their findings reveal in “recent decades the US dollar has served its purpose relatively well,” however, “in those countries and corners of the financial system where the traditional services of money are inadequately supplied, Bitcoin (and cryptocurrencies more generally) may offer viable alternatives.” Use cases aplenty can be found, from Zimbabwe to Venezuela.
“The widespread use of the dollar,” they continue, “outside the US — and full dollarization in some countries — suggests there is already demand for an internationally accepted medium of exchange and store of value.” Bitcoin ripeness.
Heavy Yoke of Government Money
Missing from their analysis is the yoke, heavy and planetary in reach, of the US greenback as the world’s reserve currency and store of value. It’s key to understanding the entire cypherpunk reasoning behind cryptographic money. With the US dollar comes the Fed system. That apparatus in turn is propped up by the US Treasury, which itself is kept insulated from monetary competition by the US military and judicial structures.
Treaties and global realism make fiat currency appear much more “stable” and “valuable” than it might be otherwise without institutions of coercion. Goldman’s authors consider exactly none of this. The two researchers actually predict bitcoin’s acceptance by Goldman and other institutions mean laws and regulations are coming. This will spur adoption, they believe. Bitcoin, they argue, needs to compete ultimately with the dollar’s transactional low cost.
It’s easy to wax about three decades of US currency hegemony, as the authors do, when ignoring reality. Low inflation and trade-weighted exchange rate stability, which buttress their argument bitcoin/crypto is no match for fiat beyond emerging economies, are maybe less desirable relative to the actual costs – if only they were stated side-by-side. Indeed, a supermajority of foreign exchange reserves are in US dollars, and one third of all exchanges settle in its dead presidents. Crypto has a long way to go.
The authors do acknowledge bitcoin’s potential to serve unbanked populations. In countries like India and China where widespread dissatisfaction with domestic currencies is growing, so will bitcoin, they write. At present the authors view bitcoin as being “more consistent with a classic speculative bubble.” That fact doesn’t seem to be stopping their employer from setting up its own crypto trading desk, however.
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