Bitcoin: the Black Swan on the Euro Market

The introduction of the Euro was supported by a System of Central Banks that enjoyed a high level of independency. The ECB was, in fact, designed to sustain the stability of the Euro without interferences of policy makers. The idea was that an independent institution would better succeed in building trust in this new currency for the long run.

Unfortunately, the decisions of Eurozone to tax savings accounts on Cyprus soil, was a political decision dictated by politicians, not a technical one. Maybe this choice was made to decrease the value of the Eurocurrency to more acceptable levels for domestic export; maybe it was just an attempt to tax Russian capital for the Euro-crisis. It doesn’t matter. It was a political decision and another broken promise that dropped the confidence of Euro citizens regarding the Eurobank System to the bottom level.

 But there is no such thing as a free lunch in any political decision governments may take. When back in 1992 the Italian government did put a tax on bank deposits, Italian citizens did not have many other possibilities then to keep their money under the mattress for the great joy of thieves. At that time there was no alternative. How different the situation is right now.

The hit searches of Google of last week show that the awareness of Europeans toward the so called alternatives crypto currencies is increasing. Bitcoins are becoming a serious possibility for protecting precious savings, instead of putting them under the mattress. Spanish people and other members of Euro community are now investing in this new storage of value that ensures so much privacy that nobody can tell how wealthy or not you are.

It really seems that Bitcoins may become the Black Swan of the Euro Market and governments did not expect that at all…

The Democratization of Globalization

From Wikipedia we learn that globalization is “the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture”. Nowadays, from an economical point of view, it means that trade and exchanges in the world, interact and integrate as never before. Goods and services produced in one particular country are now easily found all over the world and multinationals own offices in many regions around our globe.

But multinationals have access to a financial infrastructure that not everyone has. Small and medium businesses have to function in an environment with trade barriers among markets, while the differences in currencies make international trading even more difficult.

That mean that we, ordinary people, can purchase easily a standard Big Mac, no matter where we are on this world, but things change the moment we really would like to buy products with a small regional market. Let’s face it: buying THAT special bottle of Tuscans wine is not quite simple yet. If you don’t live inside the boundaries of Euro countries, such a purchase will mean transferring money over at least 2 continents, 3 banks and a lot of forms that have to be filled in.  Not really an enjoyable activity.

It’s true. The development in communication technologies of the last few years make possible to know within a “mouse click” that such Italian wine producer has really a tasteful wine in his small cellar near Florence, you could even mail him in real time to ask its price, but then life gets really complicated.

Demoralized by the quantity of paper that you have to fill in to transfer your money to Europe, you will probably give up your purchase and start a financial savings program for buying  the flight ticket to Italy for your next holiday.

At the moment, the developments in communication technologies make it possible for information to be accessible for almost everyone in real time. In other words, the increased use of Internet among people supports the democratization of information. E-mail facilitated the communication between economic agents, but we do not have a similar tool for money value yet. Or better, we did not have yet….

Bitcoin made its entry into this world sometime back in 2009 as a digital currency. Many stories are told about its mysterious founder, but one thing is sure: Bitcoin is a concept as revolutionary as the Internet itself. Bitcoin opened the possibility for the last step towards full democratization of the Internet and of money transactions. Bitcoin is a useful vehicle to transfer value. It can move fast and safe, from one side of a continent to another by a simple click. It is easy to understand now that THAT bottle of Tuscan wine gets a lot easier to get. If small and medium firms will make the effort (like some of them already are doing) to accept Bitcoin in their marketing and payment strategies, than the chance to reach markets otherwise too far will become a concrete possibility. Democratization of the Internet will not just mean easy access to information, but also easy access to economical markets for every “man in the street”. 

Tango Argentino... with Bitcoins

While Argentinean policy makers are trying in all ways to stop the dollarization of Argentinean economy and to put an end to the inflation spiral of the last years, the “green banknote” is reaching his highest value on the black market and the people on the street are trying to avoid the pesos as much as they can.

In fact a heavy inflating currency looses easy the trust of people that are meant to use it. In countries with an instable domestic situation people tend to substitute the local currency with currencies thought to keep betters their purchasing value. “Good money” drives “Bad money” away.

But Argentina is not the only one facing problems with its domestic currency. The global financial crisis of 2007-2008 has put governments all over the world in difficulties and brought the trust in economic policies under pressure. The belief that inflating measures would be able helping countries to restore economic strength is fading among people.

In other words, different kinds of markets are looking for alternatives to save and transport value. It is not such a surprise therefore that this is the best economical climate to develop and start to use a currency like “Bitcoin”. A currency that is supposed to follow a deflating pattern, but above all, a currency that can keep and transport value without interferences of policy makers.

Bitcoin runs on the internet with no barriers between its users. It makes it easy for people to transfer value among each other without the necessity of building expensive infrastructures. Bitcoin makes use of a large network: generating exchange barriers or even shut down such a network would be for a government near impossible.

In many countries the use of Bitcoins would even mean gaining a competitive advantage for firms operating in regions with a poor and fragmented bank system. Think for example small and medium firms. The existing payment and exchange barriers means losing efficiency in international business transactions making a competition gain even harder to get. A simple transfer of money between banks can take up to more than 3 days and a lot of paperwork.  No wonder if in the near future emerging economies are going to use Bitcoins for their everyday business.