“The Banking System is mostly not needed” - 38th Director of the US Mint, Edmund Moy

Edmund Moy is a former Director of the United States mint and well known economist.

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“The Banking System is mostly not needed” - 38th Director of the US Mint, Edmund Moy

Edmund Moy is a former Director of the United States mint and well known economist. Mr. Moy has a background in both small businesses, working in his parents’ restaurant as a youth, and along with being Director of the Mint he served as Special Assistant to President George W. Bush and served on the transition for the new Department of Homeland Security.

Mr. Moy also became interested in Bitcoin early in its development and continues to study the new paradigm by diving in himself. He is also scheduled to keynote at the Cryptolina Bitcoin Expo on August 16.

Coin Telegraph: How did you first become acquainted with cryptocurrencies?

Edumnd Moy:  I first became aware of cryptocurrencies when I was Director of the United States Mint. There was a footnote in my coin demand forecasting report mentioning Satoshi Nakamoto’s paper and in a later report, another footnote about the release of the open-source software. During my tenure from 2006-2011, there wasn’t much cryptocurrency activity and certainly not enough to impact coin demand.

CT: You recently purchased Bitcoins. What has been your experience so far?

EM: It was easy peasy. The exchanges I used were very user-friendly and self-explanatory for anyone who has bought products or services online.

CT: What problems do you see that are inherent in our current centralized economic system?

EM: Once sovereign governments stopped having their currencies backed by gold and began down the path of fiat currency, they’ve discovered how easy it is to create more currency with little restraint or accountability.

This problem has been exacerbated by the 2008 global financial crisis when most countries opted for monetary stimulus instead of austerity. Accommodative monetary policy almost always leads to lowering the value of currency.

The second problem is that sovereign nations are not just economic entities, but are also political ones. So while currency is mainly used for economic transactions, countries manipulate their currencies to help support their political goals. China is a prime example. They artificially keep the Yuan low to make their exports more competitive. That’s because one of their goals is to become the world’s largest economy, which is part of their broader goal of pushing the United States off its pedestal of being the world’s only superpower.

CT: Do you think virtual currencies like Bitcoin can help alleviate or even solve some of these problems, and if so, how?

EM: Because cryptocurrencies are decentralized, the market determines its value, not government fiat or sovereign nations’ political agenda. Because businesses use it for transactions, it seems to me a much more authentic and rational way to determine value. And because only 21 million bitcoins can be mined, that takes inflation (or devaluing) mostly out of the equation.

CT: What future do you see for Bitcoin in the world economy framework?

EM: Sovereign nations are not going to give up their monopolies on currency without a fight. There simply is too much institutional momentum and infrastructure built to support the current system. That will make it difficult to change overnight, let alone evolve over many years.

However, developing countries could adopt Bitcoin much more quickly. For example, many African countries have leapfrogged over landlines to directly to smart phones. Add that to the high cost of manufacturing currencies due to lack of economies of scale, and I think you have the right environment to have broad-scale adoption of Bitcoin or other cryptocurrencies.

One big advantage that cryptocurrencies like Bitcoin have globally is that it is a protocol in addition to being a currency. For example, because Bitcoin transactions are peer-to-peer, the banking system is mostly not needed and nor are their hefty transactions costs. P2P also transmits payments much faster. And because Bitcoin is decentralized, there are no exchange rates and accompanying expensive foreign exchange transaction fees. That means less friction in international trade.

“[…] because Bitcoin transactions are peer-to-peer, the banking system is mostly not needed and nor are their hefty transactions costs. P2P also transmits payments much faster.”

CT: What problems do you expect Bitcoin to encounter as it grows in acceptance?

EM: First, as Bitcoin’s use increases, so will the regulatory scrutiny. While it is hard to kill something that is open-source and decentralized, aggressive bad regulation can slow the rate of acceptance, especially among the general populace.

Second, nobody fights over a graveyard. Greater acceptance will attract greater attention, especially from hackers who will want to compromise it and criminals who will want to steal it.

Third, there will be capacity and functionality issues. The rather small and fragile Bitcoin ecosystem works pretty well now, but no one knows how well the ecosystem will scale.

CT: Can it become a real alternative for fiat money?

EM: Yes. But an alternative is different than a substitution. I believe that the notion of cryptocurrencies is revolutionary but currency and payments systems are pretty much evolutionary - when the two clash, the likely outcome is somewhere in between.

For example, the transition from a gold standard to a fiat currency took 45 years and yet there still is a role for gold in the modern economy (as bullion). Also, I grew up using cash, writing a lot of checks, and sending money orders but now use credit cards, wire transfers, and electronic banking. And I have just bought my first Bitcoin and have spent some.

All these payment systems and forms of currency exist in the market because users derive some value in them that they can’t get anywhere else. But the proportion of market share will change and some will eventually fall out of favor. My point is that if history is any indication, people will use whatever payment system and form of currency is most convenient for each transaction. There will always be a role for notes and coin, though that will likely diminish over time. And there will be a role for cryptocurrencies like Bitcoin, which will inevitably increase over time.

CT: Bitcoin being used by criminals is a huge issue. Is Bitcoin any different than fiat currency in this respect?

EM: From one perspective, Bitcoin and fiat currency are both used by criminals to conduct illegal transactions and thus function in a similar fashion. But they are also different. As a big positive, the blockchain offers more transparency than cash transactions. But there are also big negatives. Bitcoin’s peer-to-peer transactions avoid using third parties like banks, which must comply with extensive regulations intended to catch criminal or terrorist activity.

Regulators fear the transactions they can’t see, which is in conflict to some who believe this is part of the advantage of using Bitcoin. Bitcoin also allows for larger value transactions outside the banking system by criminals or terrorists without the logistical problem of transporting the bulky equivalent of cash or gold.

I also think it is a double standard that when a criminal uses Bitcoin, it’s front-page news but when they use cash, it’s a non-story. Then regulators and the uninformed talk about banning Bitcoin but not cash. But this is the reality that we operate in and until Bitcoin shakes the unfair image of being the currency of criminals, it will have a harder time being accepted by the general population.

- Mr. Moy himself

CT: What are your thoughts on the Bitlicense and virtual regulation in general?

EM: I know the Bitcoin community has strong opinions about this topic. Let me say that as a former federal regulator, I’m disappointed that this was the best product New York State could come up with after a year of information gathering. For those who care about working within the regulatory environment, they need to comment on these proposed regulations to even have a chance at modifying them.

More broadly, if the Bitcoin community wants to influence the regulatory environment, then much more education of Congress and their staffs, and regulatory agency staff needs to take place. And some other industries have a better regulatory environment because they do a better job self-regulating. I know that is tougher to do in a decentralized environment that cryptocurrencies exist in. There also needs to be a greater understanding that the federal government is not monolithic with its regulatory authority.

Instead, it is dispersed to a loose federation of agencies that don’t necessarily coordinate (and sometimes compete) with each other. Lastly, if federal regulators move too slowly, then you will see more states stepping up. That results in a patchwork environment different in all 50 states, much like how health insurance is regulated.

CT: How can Bitcoin startups make the transition from fiat to virtual currency easier for users?

EM: There are already a lot of user-friendly aspects to Bitcoin applications but more progress is needed. People will use Bitcoin only if it is more convenient, cheaper, and safer than any other alternative for that particular transaction. All the venture capital and private equity money going into Bitcoin will result in better products and services that will be even easier to use.

CT: Besides Bitcoin, are there any other virtual coins that you are interested in or watching?

EM: I’m still pretty new at this but it seems to me that the Bitcoin is the most important of this generation of cryptocurrencies. It certainly is the largest in market capitalization, has the biggest name recognition, and received the most investment. So if there is any one cryptocurrency that has the best chance of becoming mainstream, it’s likely Bitcoin.

But it is also possible that this generation may not make it, and it won’t be until the next generation that cryptocurrencies becomes mainstream. A good analogy might be with how the first generation of search engines like Netscape eventually gave way to Google.

CT: Would you recommend people to invest their money in cryptocurrencies?

EM: Bitcoin is many things including being an investment. I would personally treat it as a speculative investment and only invest if you are willing to take a loss. While I think Bitcoin has tremendous upside, I would not make that the centerpiece of my portfolio. So depending on your investment goals, age, and appetite for risk, a Bitcoin investment is something to consider.

Expert commentary:

Rik Willard:

I think Mr. Moy is pretty much spot-on across the spectrum of Bitcoin issues. He makes three points that have a particular resonance: first, he acknowledges that as banks embrace the further digitization of money, we will most likely see a hybrid of the efficiencies of Bitcoin merged with more traditional financial practices. Second, Moy sees Bitcoin as a market entry brand - so, while it has the most momentum of any other cryprocurrency in existence, it may not necessarily be what we end up actually using ten years from now. Third, he observes that people will use the payment method that is easiest at the point of sale... I agree with him, but with the caveat that we will see currencies that are developed for specific use-cases and relevant to that use, which makes it easier in a different way. One can envision a coin for children's groups, for homelessness, for almost anything where people are engaged in a cause. It is the nature of capitalism to seek out markets, and these "engagements" are actually economies waiting to happen. We now have the ability to create a vast array of clustered, federated and decentralized micro-markets which do not necessarily affect the totality of economic endeavor - but nevertheless, serve very specific economic concerns. To me, this is one of the really special gifts of the cryptocurrency movement.

Will Pangman:

He [Mr. Moy] seems very knowledgable of bitcoin and block chain tech. This is entirely rare among bureaucrats and politicians, so that's encouraging. His answer to the BitLicense question was also very encouraging. I'm pleased that he identified the quality of the NYDFS proposal as woefully untenable. However, Moy does not seem at all optimistic that the Bitcoin Community's suggestions and comments during the 45 day period can make much of a dent in modifying the proposal. This should come as no surprise, but sadly too many prominent personalities and magnates in the Bitcoin space are still under the impression that the NYDFS, or any other regulatory body, will actually listen to (let alone heed) their arguments against the ridiculous and prejudicial strictures being foisted on Bitcoin businesses and users by NYDFS. I think this is what Moy is hinting. They gathered information, made their rules, and are presenting them to the public for a pretend "comment period" before they go into effect. The rules are completely discriminatory. They will fail and fast. Bitcoin is frictionless, and to introduce friction (or any kind of central authority on anything) is to defy its most powerful trait. Bitcoin is math, so Bitcoin is also a language and nation-states claiming to be bastions of freedom and progress DO NOT make regulations on languages. The BitLicense, as proposed, will effectively make math illegal. Human beings almost always ignore bad laws. Argentinians trade foreign currencies in the streets, Russians launder money as a point of pride, and Gringos smoke Cuban cigars for the cool factor and social status it signifies. Bitcoin startups in NYC will have to comply by far more strict rules than even the most corrupt banks.


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