Stephen Moore, the conservative commentator who was recently forced to withdraw from consideration for a job at the Federal Reserve, has finally found a central bank that wants him despite what might be charitably called his crackpot economic ideas and questionable writings about women.
It is, of course, a cryptocurrency central bank.
Now, before we get into what this actually means, it’s worth pointing out that this might be both the least and most surprising news of all time. The least, because, for all their technological ingenuity, cryptocurrencies like bitcoin are built on such faulty economic assumptions that they haven’t been good for anything so far other than letting a boys’ club of libertarians make money off each other by trading them back and forth. So, in that sense, Moore would fit right in. But it might be the most surprising, because the very idea of a cryptocurrency central bank is something of an oxymoron. Cryptocurrencies, after all, aren’t supposed to have a single authority deciding when to create new coins, like the Fed does with the dollar, but rather a single algorithm dictating when this will happen.
So how, as Fox Business first reported, would Moore’s cryptocurrency, which is known as the “Decentral,” actually “attempt to perform Fed-like duties in terms of regulating the supply of crypto in the same way as the Fed controls the supply of money for the U.S. economy”? The short answer seems to be that it wouldn’t. The slightly longer one is that this appears to be a marketing gimmick more than anything else. Indeed, the fact of the matter is that the Decentral would operate just like every other cryptocurrency does: by creating new coins at an algorithmically-determined pace.
What in the name of Satoshi Nakamoto is going on? Well, the important thing to understand here is that the Decentral is designed to be a stablecoin. That’s just a cryptocurrency whose value is supposed to be, yes, stable against either the dollar or something similar. Crypto-enthusiasts, you see, have finally figured out that it’s a bad idea to have a currency whose supply is so limited that its price is prone to regular booms and busts. Buyers, in that case, wouldn’t want to spend their coins out of fear that they’d subsequently soar in value, while sellers wouldn’t want to accept them out of the reverse fear that they’d crash.
It’s one thing, though, to say that you want your cryptocurrency to always be worth a dollar, and quite another for that to actually be the case. The problem is that people wouldn’t believe it unless they had a good reason to, and the only one there is would be if you had a dollar for every coin you’d created. That can make this prohibitively expensive for anyone other than, say, a half-a-trillion dollar social network like Facebook, which, even then, will still only create new coins in response to people buying them with dollars or euros or other safe assets that it can then hold in reserve to guarantee their value.
Decentral tries to get around this problem by . . . calling itself a central bank for cryptocurrencies? Actually, yes. The hope seems to be that describing itself in such grandiose terms will convince people to trade their more established cryptos like bitcoin for a completely new one like Decentral. If this is successful, it could give them enough money to be able to guarantee Decentral’s price, but even if it’s not, it could still give them enough money to guarantee themselves a very comfortable living. And isn’t that really the point? It certainly seems to be if you listen to Moore. “I’m really excited about doing this,” Moore told Fox Business, because “I hope it makes me rich.”
Decentral, then, is a bad idea that will probably fail, but might not do so before it makes its founders a lot of money. Which is to say it really is a cryptocurrency. One thing it’s not, though, is a central bank.
Moore still hasn’t found one of those that will take him.
Author: Matt O’Brien