From Mr Thomas Bower.

Sir, With reference to “Bitcoin at $785 with a little help from Bernanke” (November 19): I think a bit of numismatic history might lend some clarity to this phenomenon as it tries to move from process to holder of value. The basis of all monetary value is a large number of people believing that something (stones, shells, shiny metals, pieces of paper, electronically guided images) will be a long-term holder of value guaranteed/regulated by a stable authorising organisation, usually a government. For much of human history this was gold, silver or a few other metals. While it had a previous history, starting in the Age of Enlightenment and particularly in the 19th century, paper became a common currency. Still there was always an issuing power and a statement of value. Interestingly, in the late-19th-century US, some paper money was printed with an image of gold coins on its reverse to assure the holder that the printed product was good as minted gold. As collector’s items they now hold greater value than their denominations.

Ben Bernanke and others may say that virtual currencies “hold long-term promise”, but I question that there is longstanding value other than as a novelty that will only hold profit for the speculators who get out of the market for them first. The innovation in the financial process of moving assets around should not be confused with an actual holder of value. That my stock portfolio is now recorded on a computer screen and not by means of a paper certificate is process, but the number of shares I own is still only a momentary picture of my financial situation, not a holder of value like the cash I have on hand. Like stocks’ value, Bitcoin has no guarantor. My cash has value based on full faith and credit of a standing government, which is another story. While King Henry VIII, and other governments have tampered with the gold (or other standard of value) content of their money, to their regret, the more money became a market commodity, like tulips during the 1637 Dutch mania, the less it became a holder of worth. Who really trusts a euphemistic coin with no stated value and whose market value has changed in a multiple of more than 50 in less than a year?

As the recent financial scandals have shown, we need to be very careful whom we trust. The bottom line of a commercial product is less honourable as a holder of value than the faith and efforts of a nation’s people and laws.

Thomas Bower, Washington, DC, US

Get alerts on Letter when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)