Gresham’s Law states “bad money drives out good”. What this is trying to explain is: “Bad money is then the currency that is considered to have equal or less intrinsic value compared to its face value. Meanwhile, good money is currency that is believed to have greater intrinsic value or more potential for greater value than its face value. One basic assumption for the concept is that both currencies are treated as generally acceptable media of exchange, are easily liquid, and available for use simultaneously. Logically, people will choose to transact business using bad money and hold balances of good money because good money has the potential to be worth more than its face value.” Now,compare those to the notion of “ideal money” which is framed as “a variety of money intrinsically free of ‘inflationary decadence’ similarly to how money would be free from that on a true ‘gold standard,’ but the proposed basis for that was not the proposal of a linkage to gold.” In other words, a basket of commodities backing a currency is proposed as a better solution than a fiat currency or a speculative investment in the form of money.
Further, I do not think a CBDC makes sense from a government perspective concerning its own currency; but it does make sense concerning international settlements. There are situations in which a government would give up control over its currency, but those situations are extreme and are not the most common scenarios in which CBDCs are being discussed. Furthermore, a CBDC does not actually stop a currency from inflating. It would just be attached to an inflated currency in that government monetary policy is the main thing that affects inflation.
The Chinese CBDC experiment has seemed to have the most success out of all the experiments so far. There was no real excitement for the Nigerian experiment for various reasons, and the El Salvador experiment has been mostly a disaster. I will never be of the mind that a nation should give up control over their sovereign currency. It just doesn’t make any sense. I am not sure why the CBDC experiment was more successful in China than Nigeria, but it is these types of differences that motivate me to do further research.
You said the Chinese CBDC experiment was more successful compared to the eNaira and the El Salvador bitcoin experiment. What’s the justification for this bold comment?
To me the El Salvador was more successful because they built a bitcoin city from the innovation and carried out other national laudable projects.
First, the El Salvador experiment can be considered a failure because the investment by the government has lost more than 60% of the value on the original investment. Defining that as anything but an abject failure is being disingenuous. The Chinese CBDC experiment has been quantifiably more successful than the Nigerian experiment concerning usage, adoption rates, and cross-border payments. While the Nigerian experiment hasn’t been a complete failure, I would point to rampant misinformation about the viability of bitcoin or ethereum as a replacement for the national currency as one of the main impediments to the CBDC experiment in Nigeria. The notion that the El Salvador experiment has succeeded in any manner is really not accurate. The Bitcoin City plan is on indefinite hold because the entire experiment has been mostly failure.
What is the main feature of a financial asset? To me, it is volatility or fluctuation. How do you call an asset that can grow by 200% and decrease by 100% in a year a failure?
I think, we can’t term an investment or a portfolio that is less than 2 years a failure because it has not gone through the bitcoin halving which is every four years.
My point is an investment goes through serious of crest and troughs. We can only term it a failure if after a long duration the net outcome is negative.
They have literally lost almost 70% of their investment. That is why I posted links. Governments have no business investing in such volatile asset classes over which they have no control as demonstrated by El Salvador’s major losses. It doesn’t do anyone any good to ignore the negative aspects of experimentation for the sake of trying to keep the narrative completely positive.
Honestly, this type of speculation hurts the long-term prospects of people taking it seriously. What happens if Bitcoin never reaches $100k? Then what? Speculation is not useful to making a topic be taken seriously.
Halving is not speculation based on sentiment or a subjective speculation. It is a speculation based on historical occurrence and data.
However, we can judge what is unknown, we only judge what is known. But, for the limited time El Salvador adopted and invested in bitcoin, we can say it’s profitable or it is not. We can only do that after a long time say 4 years.
I understand how halving works in theory and in the past. It doesn’t help the argument to completely base the narrative in all the positive possibilities instead of sticking to the demonstrable facts. If we are going to discuss El Salvador it only helps the discussion to address the data that exists without trying to overcompensate by discussing future possibilities. Halving only works as a way to increase the price if participation in mining and usage also increases. If at any point usage starts to decline, the halving does not have the same impact on the price. Furthermore, a sovereign nation putting any tax money into this particular type of speculative cycle would be seen as irresponsible in any other context. If you are going to use the El Salvador example, you cannot ignore how the El Salvadoran people feel about the experiment. 80% of El Salvadorans that were surveyed believed the experiment was a disaster. Talking about the future of the possible Bitcoin price to justify calling El Salvador anything but a disaster is ignoring how the El Salvadorian people themselves feel. That is a dangerous approach to trying to get people to accept technology. “As to Bitcoin’s supposed benefit of making it easier to send remittances, a September 2022 report from the Salvadoran Central Bank revealed only 2% of remittances involved digital currencies.”
In fact, it would seem that the El Salvadoran government continuing the Bitcoin experiment in spite of the people not believing in the project is the type of centralized decision-making that Bitcoin maximalists would assert Bitcoin solves. El Salvador is NOT a good example for almost any facet of Bitcoin implementation.
I think El Salvador would have used a Stablecoin for this experiment rather than using an unstable crypto.
The reason is because being that the asset class is highly volatile, the citizens are not supposed to be exposed to it.
EXACTLY THIS! THIS is a reasonable and logical framework from which a government would likely approach digital currency to reduce risk exposure to the citizens. You must understand, I am NOT against the notion of presenting the possibility of governments using Bitcoin or digital currencies. I have been advocating for rational and logical frameworks for years, as it is more likely to be a successful experiment if a sandbox regulatory environment is established before deploying technology into the real-world market. Having been involved in the early stages of planning in Mauritius, I can say that the modern-day success of the Mauritian experiment was completely dependent on the government being open to experimentation while being cautious about how much they put their citizens at risk.
Yes. I think there was no adequate experimentation before making bitcoin a legal tender in El Salvador. Something like 1 year experimentation is enough to determine the sustainability of the policy. I think btc is more of a speculative asset, and less of a store of value.
Considering the recently developed policy that the CBN published for REVISED CASH WITHDRAWAL LIMITS.
The maximum cash withdrawal over the counter (OTC) by individuals and corporate organizations per week shall henceforth be 100,000 Naira and 500,000 Naira respectively. withdrawal above these limits shall attract processing fees of 5% and 10% respectively.
third party cheques above 50,000 shall not be eligible for payment over the counter, while extant limits of 10,000,000 Naira on cleaning cheques still subsist.
the maximum cash withdrawal per week via automated teller machine (ATM) shall be 100,000 Naira subject to a maximum of 20,000 naira cash withdrawal per day.
Do you think if the above policy accurately implemented will have a positive impact on eNaira?
I personally don’t think this is the right approach. In the case that the e-Naira was not being adopted at a desirable rate, trying to force usage will likely have the opposite intended effect. I am skeptical of this approach and think it will have a net negative impact on e-Naira usage.
@Raphking This will only result in more hardship and if we are to talk about enaira adoption, this is not the best approach. They’d only go into cashless economy but most people would use POS transfer as the only alternative.
Here are the impacts this policy will like produce:
Businesses:
How do the informal sector that transact business with cash cope? Businesses in rural areas dont use online payment method, they only transact with cash. It would be a big problem for them.
Individuals:
How much is 100,000 per week when inflation is at all time high. How will household that have expenditure above 100k cope?
I think, the policy would likely be reversed because it lacks the element of feasibility. In fact, I think people prefer to do online banking than using eNaira.
Nigerians are people that always devise a creative way to solve their problem. To me, this policy is unrealistic and as such not feasible. It will have negative effect on household and businesses.
When the CBN banned crypto transaction in Nigeria, the youth devised a means to solve the problem. P2P usage skyrocket.