Welcoming the Bitcoin challenge: the case for opening up currency markets to competition

If competition is so good in markets for products, why shouldn’t we allow competition in markets for currency too?
The emergence of Bitcoins and other forms of digital currency could revolutionise money markets. If competition is so good in markets for products, why shouldn’t we allow competition in markets for currency too – why should governments have a monopoly?
Our current system of coinage and paper money has evolved from centuries of turbulence – could digital currencies provide the stability to prevent shocks in the future?
The upfront cost of printing a piece of paper and calling it ‘currency’ is essentially zero, as Robert Mugabe can confirm. The short term benefits of printing lots of money are as enormous as you want them to be, but the long term costs of inflation and loss of reputation are devastating.
So there is not much more reason to believe that a privately created currency will demonstrate any more monetary discipline than a desperate despot. In America, various colonial and continental currencies were in circulation before independence in 1776. Ten years later the Continental Congress tied the value of the US dollar to gold reserves, marking the start of almost 200 years on the ‘gold standard’.

This post was published at The Guardian on 26 November 2014.