Bitcoin may not have intrinsic value, says Bank of England governor Bailey

 

The latest issue of the Financial Times is that the Bank of England has warned that there are “serious questions” surrounding whether or not the “real” value of the “virtual” currency in the world of the Internet can be determined. This seems like a pretty radical argument; one that would call into question the entire value of the dollar and certainly the very idea of using any other commodity as a bartering tool. In order to make this point, the author of the piece begins by stating that the question is not really whether the currency is real; rather, the question is whether the “legitimate” value of it is defined by the legal system in any given country. From this point of view, it is the central bank’s responsibility to determine whether or not the value of one currency is determined by the legal framework in which it is based.

The author goes on to say that the Bank of England believes that the current legal status of “digital money” is a product of the legal system of that particular country. This being so, there is no reason why it should not be used as a bartering currency and not an actual monetary unit. The authors also take a look at how governments in the US and Europe view virtual money.

Virtual money is said to have a tendency to “bubble up” and go down rapidly. This phenomenon has been taking place since the early days of the Internet, which was considered a very speculative market that was prone to bubbles. In the United States, this bubble burst as the housing bubble imploded, which was also a speculative bubble and it turned out to be just as dangerous.

However, it is a well known fact that most European banks were never really interested in trading in currencies other than the Euro during the last recession. This is because the real value of the Euro was not much of a concern to them because they were actually quite comfortable holding onto their cash reserves in Euros for a long time. They had money to invest, not much in terms of a bubble that might burst.

Many European central banks are now coming around to the realization that they may be holding some of their money back from the global market by holding some of it in the Euro. The problem with paper money however is that it can become too easily liquidated. {which will cause its value to depreciate if it is not backed up by any real wealth that could be liquidated. If this happens and the value of the paper currency depreciates, then it makes it less valuable than it would be if it were backed up by something tangible like gold or silver.