How would a bitcoin standard fare for a monetary system? An analysis by the Bank of Canada examined that scenario, conjecturing how a bitcoin standard would perform based on the performance of a gold standard that existed from 1880 to 1913. The gold standard was a monetary system in which nations’ currencies were tied to gold.
The 37-page paper [PDF] is written by Warren E. Weber, research consultant at the Bank of Canada, visiting scholar for the Federal Reserve Bank of Atlanta, and adjunct professor at the University of South Carolina.
The paper claims that because there would be no arbitrage costs for global transactions under a bitcoin standard, nations would not be able to follow independent interest rate policies. Central banks would retain limited ability to serve as last-resort lenders.
Benefits Over Fiat Currency
A bitcoin standard would have two key benefits over fiat currency. One is there would be more price level predictability on account of the deterministic rate by which the cryptocurrency is created. A second is that resources