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Comment by nadam | Hacker News Reader

Let's say we have a huge global cryptocurrency, that the whole world uses. If I understand well, when the economy expands, you can buy more BigMac for one unit, when the economy shrinks, you can buy less BigMac for one unit. What I am wondering now is whether is it something that needs to be avoided at all, (or can it be avoided in the long term at all).

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When the economy does well you earn 20 CryptoUnits a year selling widgets. When the demand for widget falls the staff refuse to take a pay cut to 15 CryptoUnits a year and so the company introduces big layoffs instead. This is made worse because nobody's willing to lend the widget manufacturers part of the fixed supply of CryptoUnits, firstly because hoarding the coins is a less risky strategy with the same expected return even when the economy is doing well, and secondly because they're especially not keen to lend CryptoUnits when they're expecting goods to get cheaper in the future.

Recessions happen with fiat too, they just can be a lot deeper when nobody can intervene to stabilise things and induce the people holding Crypto into lending and spending again or accepting real terms wage cuts.

For bigmac it's not a big deal, but for investment it is. Imagine your company have 10 millions in cash, you could invest on a new machine to produce more (or better quality, or cheaper). But if you knew that the machine was going to cost you only 9 millions in 3 months. Will you buy it now even though you know it's only going to make you earn 300k in 3 months ? Of course not, you'll wait those 3 months. This is the problem with deflation, nobody wants to invest and people delay or reduce consumption. this really harms the economy.

The Capitol Hill Babysitting Co-op is sometimes cited as an example of this. https://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op

Never heard of that, thank you !

That would be an argument against stock market and interest rate as well.

If a significant number of companies waited those 3 months to invest, there would be no deflation.

The deflation will be the same as the increase in a stock market index.

> If a significant number of companies waited those 3 months to invest, there would be no deflation.

And little economic activities in the meantime (because all those investment deals wouldn't occur).

At the equilibrium, you'll have zero deflation and a growth which is way below its potential (it could even be a recession, slowly converging toward zero growth). That sounds fantastic doesn't it ?

I didn't understand you two other points though.

If a cryptcurrency grows large enough to be the size of an economy, the value of the cryptocurrency should grow or shrink with the economy, like a stock market index. At that point keeping money in the cryptocurrency should be similar to keeping it in an index fund.

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