Christine Lagarde Says Crypto “Worth Nothing” & Should Be Regulated
cryptolka.com
cryptolka.com
[edit] I'm sure they're just waiting for their fiat shill check form Soros.
[edit] Just a quick side-note: you do know that "fiat banks" (a hilarious term btw) don't care what you keep in them right? BNY Mellon and Fidelity are more than happy to custody your future of finance for you so it doesn't get lost in a boating accident. These people are far less zealous than you seem to imply. How about we avoid ad hominems?
Is it irony right? Because your second edit seems more serious and end with 'How about we avoid ad hominems?'
Irony is hard on the internet.
Generally this belies a serious lack of understanding of where money comes from and where it derives its value.
If I go to the bank, and borrow money for a house in the form of a mortgage, then new money is created. An obligation to repay that money is also created. That obligation to repay is collateralized by my house. In this case, the new money that was created was in fact backed by hard assets.
More generally the value of money is derived from an obligation to repay the debt that created it, and the legal system and framework which enforces it.
[edit] Note also that the US bailouts weren't monetary policy, but fiscal policy. They were administered by Treasury, not by the Federal Reserve.
Now do the Wormhole bailout by Jump lol.
If you have a stack of 100 dollar bills, where do you take them? What debt are you repaying or what can you exchange them for?
I think you are diverting from having such a hyperbolic reaction to someone else's comment. They pointed something out and you launched into some sort of conspiracy nonsense that they didn't say.
Also do you realize you are accusing people of "bad faith" when you replied to someone and said "I'm sure they're just waiting for their fiat shill check form Soros.".
All I think it demonstrates is how little these advocates seem to understand economics and banking.
If the linked article contained anything other than a brief offhand remark by Lagarde (as quoted by the OP), it would be reasonable to address her argument in greater depth.
As it is, the sole reason this is even being discussed is due to the authority she wields. It is therefore reasonable to address that authority instead.
The OP posits that a person whose authority is potentially threatened by a technology might not necessarily be an impartial judge of said technology. You might agree or disagree, but you’re not really responding to the argument. And you’re the only one bringing up conspiracy theories.
Example: We imposed strict sanctions to Russia that almost cut any trade with them. Is the Russian currency valued at 0? Of course not. Because Europeans, Indians, Chinese are buying Russian currency to pay for Russian natural gas / oil.
https://www.npr.org/sections/money/2022/04/05/1090920442/how...
If you got rid of the government, the value of the currency might still go to zero, while the intrinsic value of the resources could still be worth something paid in another currency.
If there was no Russian government and army then you would just go in and take whatever resources you like at the cost of maybe a couple of bullets.
Transaction costs are not a factor in the worth of the asset.
Just because you haven't lived long enough to see a major empire fall doesn't mean it won't happen eventually.
Inflation is just a symptom not the cause of an economic collapse.
If inflation is also something that is everyone's problem then my thesis is that it is nobody's problem.
They become worth nothing because people realize the central bank will inflate away the future value of any RMB, and thus holding RMB or any asset that derives value from future RMB (including stocks in businesses whose revenue or dividends are in RMB) become worth nothing.
Good money is supposed to be a good store of value as well. If RMB cannot store value, people will not use it. If people do not use it, it becomes worthless.
So even if you don't want RMB if the government pays you with RMB then you take it. That means that banks, contractors, employees etc all get RMB.
Government can also force trade parties to trade with its own currency, like Russia does today.
Venezuela was stripped of its manufacturing capabilities with the exit of foreign investment due to sanctions. Their former petroeconomy now is worth nothing.
The intrinsic value of their currency is lost, as the Venezuelan gdp in absolute terms disappeared.
Currency exchange rates is the least of their problems.
They are out of value. Not out of valuable cash.
"whatabout" traditional banking?
But it doesn't, it just requires acknowledging that crypto is burning more energy than most countries for a comparatively tiny number of people to gamble a comparatively tiny amount of wealth, and that the actual incentive structure of PoW (probability of block rewards based on consuming more energy than rivals) is the most wantonly environmentally destructive technology invented in a history which also includes leaded petrol and CFCs.
Is it supposed to convince people to adopt it or else they are hypocrites? When has that ever worked?
But it does reveal to people that "value" is a human construct. A central bank can create infinite money out of thin air, but we never stop to think about that.
Why do you think people don't know about it or haven't thought about it? Is there some predicted outcome in the world—that is absent—that suggests that people don't know that "value" is a human construct?
Most people are living their lives day to day, and never stop to think about what money is. We just use it, and never stop to think about why paper bills are worth anything (or that our entire networths are basically digits in a MySQL database these days).
I supposed I could be wrong and that my taxi driver is indeed well informed about the nuances of monetary policy and monetary history.
Why are you strawmanning my argument? I didn't ask if you believe your average person knows "the nuances of monetary policy", I asked why you believe people haven't thought about "value" being a human construct.
Everyone I've talked to about the subject acknowledges that they've thought about it before. Some go as far as to roll their eyes, like "oh great, this conversation again" because it's so played out. So I think you're seriously underestimating who hasn't heard of these ideas.
Go ahead, ask your next uber driver why money has value, and see if the response isn't something along the lines of "because people believe it has value." It's not a difficult concept only understood by experts.
This is not where money comes from.
A central bank is a financial institution given privileged control over the production and distribution of money and credit for a nation or a group of nations. In modern economies, the central bank is usually responsible for the formulation of monetary policy and the regulation of member banks.
Money isn't pushed into the economy. Money is pulled when loans are taken out, from retail institutions. These loans are constantly repaid meaning that the money supply is controlled by the quantity of origination of loans and the rate of repayment of existing loans. The Fed controls the circulating supply by adjusting the demand for new debt, by setting interest rates.
Generally even QE, the Fed creates reserves and swaps them for liquid assets like treasuries. These reserves then collateralize additional lending. [1]
[1] https://www.forbes.com/advisor/investing/quantitative-easing...
But central bankers think about it on a daily basis. Christine Lagarde has certainly paid a lot of attention to whether the amount of money the system demands is about right or whether an interest rate rise is needed to stop the economy overheating, whether there's enough liquidity and financial control the commercial banking system the central bank feeds into, what the change in the shape of a bond yield curve says about investors longer term expectations of for money, and what the side effects of all this money coming in is on the rest of the economy, and whether a particular downturn is better ameliorated by fiscal policy. Thinking about this is literally why her job exists.
People LOLing at "fiat" currency coming from nothing whilst rushing to buy the newest token invented from nothing (as a wealth generation exercise for its creators) that isn't supported by monetary policy (or redeemable as legal tender), not so much.
Yes, and it is them we have to thank for the massive inflation too. So either they want the highest inflation in 40 years, or they are inept.
(And yes, they absolutely do prefer the high inflation outcome from a fuel supply shock following a COVID shock to the raise interest rates and crash the global economy like 2008 outcome. That much is a policy choice)
In a "prepper" type disaster scenario things like farm land, ammunition, antibiotics, or specialized survival skills would be worth far more than gold.
Next, people started increasingly accepting gold in trade, just by their individual decision. Because of this, it made sense to try to obtain it yourself to take part in the economy. When the demand grows for gold as a monetary good, it becomes even more valuable, and therefore even more rational to save and use in trade, and at the same time demand for other types of money diminishes. At this point, the network effect is so strong that it becomes obvious to everyone that gold is money, i.e. it is the most wanted good in the market. That's also why money tends to converge into one, when there are no regional regulations or controls around money.
Historically, gold has become money independently in many parts of the world. It has been money for thousands of years, and in many forms. King Croesus was probably the first who minted standard-weight gold coins, to make it easier to transact with.
'I'm going to let my child make his own mistakes, despite my view that it's a stupid idea'
I think most coins are Ponzi schemes. I still have a very small investment in a few coins, because why not. I was dumb and didn’t get out when I had a 4x return, but it honestly isn’t enough money to matter to me in the slightest. I also think this is an area that should be regulated in some way (or at the very least, the large exchanges should be regulated), because too many people are going to lose too much money, but I don’t think crypto should be illegal or anything.
I just don’t see the problem with her acknowledging that she knows people who have holdings but also that she doesn’t see the real value basis and thinks it is a space that should be regulated.
I can only assume you don't know who Christine Lagarde is because to suggest she doesn't understand money is not only ridiculous but bordering on offensive. Here is her wikipedia page: https://en.wikipedia.org/wiki/Christine_Lagarde
To say Lagarde doesn't understand money is like saying Paul Graham doesn't understand startups. It's absurd on its face. You may disagree with their philosophy but there's absolutely no denying their deep understanding of their respective subject matters.
Kim Kardashian and Floyd Maywether are being sued for shilling Ethereum Max (lol) [1]
Quentin Tarantino for NFTs re Pulp Fiction.
Jake Paul of course, with his Dink Doinks.
Nick Carter, Ben Phillips, Soulja Boy and Lil Yachty re: Safemoon.
Need I go on?
[1] https://www.cnbc.com/2022/01/12/kim-kardashian-and-floyd-may...
Crypto is not a circular economy. It's a speculative investment whose expected return is always negative.
The point remains: someone spending $USD to acquire $<Crypto> should expect to lose $USD when they invariably want to sell their tokens for $USD later. Casino chips are also a negative-sum game, even though a loan shark may loan you some for interest.
So, serious question for people who argue that Bitcoin deserves a special class of regulation: what differentiates Bitcoin and Netflix here?
I don't think Bitcoin has anything like that - its ledger is public, yes. But the important part, where fiat currency is turned into Bitcoin or vice versa... that is opaque, for the most part. This is a very big difference, in my mind.
I don't think that Netflix itself has a responsibility to report the flow of fiat currency into and out of Netflix, certainly not in a timely enough way to prevent people from being burned by the outflow of capital from it (as, indeed, has happened this year). The stock exchanges themselves provide visibility into that.
You seem to be hinting that there's a natural limit to what we "can" do for any given security. I don't think that's true: it's just all tradeoffs. Could a regulator have tried to stem the losses people experienced from Netflix? I mean, sure. They could've halted trading on Netflix. They could've artificially bought up Netflix's stock.
I don't think they should have done all that. The costs would have been extreme. But if you're all in on, "we did what we could," then I think the ball's in your court to describe exactly where the limits of that doctrine lie.
That's the point of this whole thread: whenever you get crypto haters on these fora, they act like crypto is the only volatile asset that has no effective price floor. But in fact, there are loooooooooooots of assets that are volatile and have no effective price floor.
Are those assets dangerous to invest in? They sure are. I don't invest in crypto and I don't invest in Netflix, either.
But do those many other assets that are volatile and have no effective price floor draw all this apocalyptic talk and complaints? No, they don't. They may draw entirely reasonable discussions of the value of not investing all your eggs in one basket. Which suggests to me that all the hate that crypto draws is not in fact because they're volatile and have no price floor -- that's a smokescreen for people who, generally, are in some combination of: a. don't like the politics of some people involved in crypto, or b. are pissed off that they spent a decade saying that crypt was going to crash any day now and have been consistently wrong.
A ponzi scheme in itself isnt illegal (which is why there are so many crypto ponzi schemes) - it is when it is considered securities fraud that it becomes illegal.
The thought is that by regulating cryptocurrencies (i.e. treating it as a similar asset class as stocks, commodities, etc), such "investments" would be subject to the same rules - whether it has any real inherent value or not is irrelevant.
It's a bottle imp. [1] While it is fundamentally worthless, it relies on irrationality to create price in lieu.
We both know that banning all of them is not going to happen. Is that why instead of that, they are putting in AML, KYC, etc regulations and more for these crypto exchanges?
Governments and regulators are worried about it because when enough people invest their life savings in crypto, and it disappears, that's real capital that is gone from the existing banking system. Fractional reserve banking enables banks to use money they hold in deposits to fund large projects, loans, and invest (with plenty of regulation about how much money they must hold in reserve to ensure customers can always withdraw their funds).
If enough people lose their shirts then it starts to have serious effects on an economy.
How big is the fraud number for USD or Euros? Billions per month?
Banking is regulated to prevent these sorts of things. Crypto is designed to enable them. They need to be regulated.
I think as usual government just wants another thing to tax and control.
What Lagarde is saying is that this stuff needs to be regulated before too many people lose their shirts. So far these "crypto assets" have demonstrated no value. Many folks are dumping their life savings into these schemes and losing everything. If enough people lose everything houses foreclose, debts go unpaid, inflation goes up.
The same thing was done every time the grifters tried it in traditional currencies. Too many people lost their shirts, government stepped in, we changed the rules and added regulation, and people get better protection. The crypto space is speed-running through all of these scams. What they're doing isn't new, it's all been done before.
I'm sorry but it's asinine to compare securities and currencies, and straight-up whataboutism.
You can create security instruments out of crypto, but that is not the same thing.
Of the countless of millions of dollars lost in crypto the first sentence in every statement reads "we've contacted the federal authorities and are trying to get your money back". Why isn't it "code is law suckers, you know what you signed up for"?
In this people act like children, when they get scammed they don't blame the scammers or themselves, they blame and put strain on the resources of the people who warned them.
Outside of enabling illegal activity, scams, money laundering, etc. crypto is useless.
But I will say, as a fan of poker I am grateful.
Baseball cards are worth essentially nothing, yet I do not see international powerbrokers of questionable democratic lineage promoting baseball card regulation.
The real irony is when central banks try to make their own digital currencies, to more effectively try the past negative interest rate experiment among many other things like tracking. (Japan tried it as an interbank borrowing rate but had the opposite results.)(China is planning to do all that, and the Fed made a proposal here also -- unlikely to be taken seriously -- https://www.federalreserve.gov/central-bank-digital-currency....) The working theory to my understanding of such proposals is: "We shall qualm the thirst of the public for digital, and also have a more effective tool to price/change the scarcity and cost of having paper money directly bypassing the banks."
>"The day when we have the central bank digital currency, any digital euro, I will guarantee it," she said. "So the central bank will be behind it. I think that is vastly different from any of those things."
What Christine meant to say is she doesn't like it that a central bank is not involved, because it has implications for her job and IMF as a private lending institution if people can move money that easily.
She is not wrong though in her warning; it is a risky asset. Yet to that effect other stocks for instance have much higher volatility and have been shorted to death. Bonds and gold have/had plummeted at various occasions despite that. And diversifying is almost impossible -- e.g. some hedge funds while having perfectly hedged were doomed as Lehman went down taking their assets with it.
I think historically and using physics and economics we can assert only one think, that everything tends to have zero value in the end -- \lim \limits _{t\rightarrow \infty} value(t) = 0. In that effect she is right. (Empires will crumple, habits and attitudes shall change, and if not the sun will finish the job.)
P.S. Personally, the day central banks have a digital currency that is forced eventually is the day I call 1984 done. Central banks are always political beasts and tools.