Nobel prize winning economist Joseph Stiglitz has, in a public event at the London School of Economics, stated that bitcoin has been “effectively” shut down by the U.S. government.
Joseph Stiglitz is, by any account, a renowned economist, an influential figure and scholar in world economics. The 73-year-old American is notably a recipient of the Nobel prize in Economic Sciences in 2001 and is currently a professor at Columbia University, New York.
Stiglitz has received over 40 honorary degrees from the likes of Harvard and Cambridge Universities while being decorated by several governments such as South Korea, Colombia, Ecuador and more. He was also the chief economist at the World Bank for three years between 1997 and 2000. The list of accolades above still does not do him justice, his Wiki article sums up an exhaustive survey of his credentials.
The Bitcoin Question
At a recent public event at London School of Economics while promoting his latest book, Stiglitz issued a public lecture before fielding questions from the audience.
It was here that Stiglitz was asked to offer his views on bitcoin. The question is notable in itself. A member of the audience asked Stiglitz:
Hi. My question is what is your opinion of bitcoin? Not necessarily on what is its impact, the trend and how it’s shaping the international system, globalization, but what is your perception of bitcoin and cryptocurrencies?
[In the way that] everyone being able to use and own their own banks and money, use it and trade it without any government regulation, authority. It is thoroughly decentralized and it’s unregulated, freely by the markets.
[My question is] It’s not about the impact of cryptocurrencies, but your personal philosophical opinion about the creation of cryptocurrencies. Thank you.
The question was sweeping in its context and summarized the-most-unique facets and functionalities of bitcoin, compared to fiat currencies. Unregulated and decentralized, a significant innovation to be sure. Wall Street seems to agree, in the way banks are flocking toward blockchain technology – the core innovation powering bitcoin.
The stage was set for Stiglitz – the 4th most influential economist in the world according to academic citations as of August 2016 – to offer what could very well be his first publicly-expressed opinion on bitcoin.
My own view is: bitcoins have been greatly exaggerated. A common medium of exchange or a store of value is a basic public function and needs to be regulated.
Already, it is apparent that Stiglitz is, unsurprisingly, aware of bitcoin and the underlying potential that cryptocurrency observers praise it for.
For context, Stiglitz is the current Director of Graduate Summer Programs at the Brooks World Poverty Institute, an arm of the University of Manchester dedicated exclusively to research on poverty, inequality and growth around the world. One of bitcoin’s many advantages is the way in which it can help bring respite to those who remain unbanked, around the world. Mainstream media has frequently covered the very subject of bitcoin conflated with poverty.
However, Stiglitz’s comments reveal that he does not buy into the idea or notion of a borderless, unregulated world currency, free from any authority. Instead, he offers a very different take on what bitcoin, as he sees it, is meant for:
The main use of bitcoin has been to circumvent tax authorities and regulation. I think the US government did the right of thing of shutting or trying to shut it down and I think effectively…it has done that.
Stiglitz is, of course, mistaken in his view that bitcoin has been ‘shut down’ by the U.S. government. It begs the question: what was he referring to? It’s possible that the Nobel laureate could be referring to Silk Road, the darknet drug market that is prominently associated with bitcoin.
A Renegade Against the Institution
It is somewhat unfortunate that Stiglitz’s grasp of bitcoin is currently limited. This is a man who, as a Nobel prize winner and former chief economist at the World Bank, lambasted the International Monetary Fund (IMF) publicly in the past for its part in crises faced by economies around the world. His unrelenting criticism of the IMF, some say, even resulted in his departure from his role as the World Bank’s chief economist.
He once described of the IMF staff as:
“[T]hird-rate economists from first-rate universities.”
To expand on Stiglitz’s criticism of the IMF, a 2002 article from the Guardian reads:
The IMF made two big errors in the 1990s, in Mr Stiglitz’s view. The first was to bow to Wall Street’s demand for new markets, by making IMF loans conditional on countries opening up their financial sectors. The resulting rise in speculative capital flows has proved disastrous for fragile economies.
At the first sign of trouble, foreign investors pull out. At the height of the Asian crisis, some countries faced capital outflows of more than 10% of GDP.
The second error was to prescribe a mix of fiscal austerity and high-interest rates for the countries in the speculators’ firing line. Calling on countries running healthy budget surpluses to tighten their belts only intensified the recession
His stinging criticism of the IMF turned so many heads that the director of external relations at the IMF gave an entire speech that retorted the many accusations and criticisms of Stiglitz. That speech-in-response, from June 2002, is still available on IMF’s website.
As things stand, Stiglitz’s take on bitcoin is somewhat coinciding with that of Christine Lagarde, the managing director of the IMF. In a speech in late 2015, Lagarde was addressing bankers at a banking industry conference, quelling any fears that bitcoin and blockchain technology would threaten the banking industry.
Surely, there are a few students at Columbia University refreshing their pinned bitcoin price tabs while attending Stiglitz’s courses. It would be prudent to inform the professor that bitcoin is not only not-shut-down by the government, the cryptocurrency is also gaining in value recently.
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