Matthew Parris

Matthew Parris: Logically, bitcoin fans should love the euro. Why don't they?

Funny how Euroscepticism and a faith in hard money go together

14 December 2013

9:00 AM

14 December 2013

9:00 AM

Bitcoins have been in the news, after a story about an unfortunate fellow who jettisoned his computer’s hard drive that contained (apparently) the code he needed to access his stash of this electronic currency — its value more than £4 million. I don’t even pretend to have an opinion on bitcoins. I only just, and most imperfectly, understand what this electronically traded currency is and why it appeals to people.

But it has got me thinking. A bitcoin is a single currency, a global currency, a currency beyond the reach or control of national governments around the world. In theory (unless governments try to ban the bitcoin) it would be politician-proof.

So my question is this: what would a Eurosceptic anti-single-currency-wallah make of bitcoins, or any transnational or world currency? What would be the ideologically correct response of the sovereignty-conscious right to the emergence of tradeable units of value whose price was fixed entirely by international supply and demand?

Because, you see, it’s my belief that British conservatives’ detestation of the European single currency, though usually couched in strictly economic terms, is actually rooted in a detestation of Europe, rather than the theoretical concept of a single currency. Would they feel the same about Britain’s adopting (say) the American greenback?

Think about it. The idea of a world currency whose value was determined entirely by demand, whose supply was decided by an authority other than national governments, and whose interest rates were determined entirely by what lenders were prepared to demand and borrowers offer, has a kind of right-wing beauty about it, doesn’t it? Nobody could fiddle with it, nobody could manipulate it, prices around the globe would tend to converge and stabilise so that true comparisons could be made of costs and productivity. The whole concept would seem to me to tend towards an increase in honesty, transparency and clarity, and do so in the merciless way that should appeal to economic liberals, of whom I suppose I’m one.

I’m aware that I’m probably committing all kinds of howlers and overlooking all kinds of key considerations, but as I’m in thus far, I’ll continue.

Like all good Tories, I’m a Eurosceptical critic of the European single currency, and the idea that the UK should ever join it. But I don’t find that my reasoning on the subject bears too much scrutiny. What above all disturbs me is the suspicion not that the Eurosceptics’ case against a single currency is weak, but that it is too strong.

The case is centred, I suppose, upon the objections to a ‘one size fits all’ currency, and to some extent therefore economic policy, when in some countries (for instance) higher interest rates might be needed to dampen things down, while in others the stimulus of lower interest rates might be suitable. ‘Fair enough,’ I muse, ‘but what possible reason is there to think that the boundaries of these zones and regions, in which one macroeconomic prescription rather than the other would be best, are likely to be co-terminous with national frontiers?’

Doesn’t London and the south-east need damping down at present, and Liverpool, Wales or the north-east need stimulus? Why have a ‘one size fits all’ currency regime that does not distinguish between prosperous Catalonia and struggling Andalucía? As regards the appropriate monetary policy, doesn’t northern Italy have more in common with northern France than with (say) Sicily?

Or should we focus on even smaller economic zones? There’s almost no real unemployment in my old constituency of Derbyshire Dales; property prices are if anything too buoyant; commercial and industrial land is in short supply; and no serious stimulus is called for. Not so Dennis Skinner’s Derbyshire constituency of Bolsover, which almost adjoins Derbyshire Dales, but where the death of the coal and the (nearby) steel industries have hit a large swath of the East Midlands. Should we have different currencies for Bolsover and Derbyshire Dales?

Then comes the related question of the valuation of currencies. It is said that Britain can benefit from being able to devalue sterling whereas poor old Spain is stuck with the euro, whose high value has been choking Spanish exports. But isn’t it cheating to use interest rates and monetary policy in order to devalue your currency and gain a temporary competitive advantage for your exports, by making them cheaper? What if Spain did return to the peseta, Greece to the drachma, etc, and all these countries were enabled to cut the price of their exports relative to the price of ours? How is a ‘fair’ value for a national currency to be determined so that the clichéd ‘level playing field’ with its competitors can be maintained?

It appears to me that a common currency, or at least a common yardstick of value globally, is the only antidote to cheating by national politicians who seek advantages for their own economic zone, and manipulate their currencies accordingly.

Well, you can see where this going: towards a gold standard. But we used to have that. Doubtless there are excellent reasons why the gold standard didn’t work and we cannot return to it. I simply note that the psychological appeal of the gold standard is surely to the right, who don’t trust governments, while the appeal of national currencies manipulable by politicians is surely stronger on the left.

But what was the gold standard but a sort of single currency? And why was it generally the right who favoured keeping it, and some on the right who have continued to favour its return? If the argument for a single European currency comes from the same stable as the argument for a world currency like gold, why do the right switch sides only when the word ‘Europe’ is attached to the idea?

Enough economic blunders there, I suspect, to last me a whole year. So that’s my quota for 2013 exhausted. But seriously, I’d like to know. Until then, let’s agree at least on frankincense and myrrh.

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Show comments
  • James Allen

    In the sense that most eurosceptics are conservatives who believe in hard work and self-reliance, a preference for hard money over inflated (fiat) currencies – a mechanism by which present generations borrow from the next – is understandable.

    But more to the point, euroscepticism is a political motivation, not an economic one. It is perfectly rational for me to oppose the UK’s membership of the EU whilst simultaneously being long Euro / short Pound. My opposition to being governed by Brussels does not blind me to the fact that Euro countries are far less indebted than the UK and have not (yet) engaged in quantitative easing. I also keep a certain amount of money in gold in the expectation the debasement of the pound and dollar will eventually lead to higher inflation. Again, I don’t see this as a contradiction.

    p.s. I have noticed you repeatedly attack euroscepticism by conflating it with other contrarian positions. But you seem to forget that euroscepticism is only contrarian amongst the political elite! Most of the rest of the country regards eurosceptisim as the natural position to hold vis-a-vis the EU. Perhaps this is what upsets you most?

  • Freddie

    whether relevant or not a point I would like to raise is that a single currency without total political unity is a dangerous idea as each country e.g Greece have a certain measure of freedom to spend how they like, this in turn means the entire currency can be dragged down by a single country.
    That is a fear of at least a few people I’ve met.

    • ud6

      We’ll soon see with Latvia (joined euro today)… another of EUs dangerous experiments in politics ahead of economics.

  • Gareth

    The ideal currency would be based on something of real value, eg gold, silver, kW-hrs of power, etc . Ideally, everyone would adapt to a currency that was inflation proof. In reality, most people in most countries have come to expect regular pay rises. The exception is Germany, where workers will go 15 years without a pay rise. The result is that no other country can live with a fixed exchange rate with Germany. Hence the disastrous effects of the euro on Southern Europe – permanent slump, 25% unemployment and rising. Any pragmatic right-winger must accept that most countries need soft currencies and modest inflation.

  • Roger Hudson

    I think the best currency is the kilowatt.hour, what is human life without energy and it is real not fiat. Of course that makes Centrica like the Bank of England which is not good.
    States and central bankers are scared stiff of virtual internet fiats and the free software movement that supports Bitcoins, strong encryption, Onion, TOR etc.

    • Paul Caple

      States are scared of the chaos virtual fiats will cause. But we’ll will be all the wiser ten or twenty years from now. Meantime there is money to be made buying then selling to a greater fool.

      • ud6

        I think cryptocurrencies will take off and be the major method of transactions… but who knows if it will be any of those we are currently using?!

  • Why would people who oppose the governmental control of currencies support a currency that is entirely out of the hands of all governments? Gee, let me think about that.

    • greggf

      Well Donna, gold is not controlled by any government…..

      • Your point being? Many people who invest in bitcoin also like to invest in gold, for much the same reason.

        • greggf

          I was just waiting for you to “think about that” Donna, and conclude that governments do not control any free-market currencies – the market does.
          Have you?

          • Are you suggesting that the Euro is a free market currency?

          • greggf

            Of course it is!
            Freely exchangeable into other currencies, gold, credit, bonds, traded freely in Japan, China, S. Korea etc…
            No debauchery here, as long as the Bundesbank are around.
            Why do you doubt it?

          • Kit Ingoldby

            Are you forgetting about how governments print money and adjust interest rates?

            Government currencies are hardly ‘free market’ commodities.

          • greggf

            Interest rates are set by movement of short term bonds in the market – a result of zillions of trades, Kit. Governments only respond to the level the market sets, they don’t control.

            Debauchery = governments printing money!
            No debauchery = governments do NOT print money, which is the case with the € and Swiss Franc!

            The government doesn’t own a currency any more than you or I, it’s a means of exchange and sometimes other currencies are used; US $, gold or bonds or even barter.

          • Paul Dillon

            You give yourself away when you compare the Euro with the Swiss franc. Even if it were true that the Bundesbank did prevent inflation, it could print more money if it wanted to. More Euro’s get printed to keep up in the inflation race with other currencies. Donna InSussex is absolutely correct

          • greggf

            What inflation race Paul?
            Recently the risk has become deflation.
            Goolgle “deflation and the euro”.
            What is Donna correct about?

          • Kit Ingoldby

            The government does ‘own’ a currency, when that government sets nominal interest rates and controls the quantity of money.

            The fact that the Swiss and supposedly the EU have not yet debauched their currencies does not make their fiat currencies any sort of ‘free market’ commodities.

          • greggf

            Currencies are not commodities Kit.

          • Kit Ingoldby

            If you wish to be pedantic, they are purely means of exchange, although they are traded as if they were commodities.

            That pedantry adds nothing to the discussion of whether State issued fiat currencies are remotely ‘free market’ instruments.

            PS, don’t use wikipedia as a reference if you wish to maintain any credibility in serious discussions.

          • greggf

            Ah credibility!
            Well yours, Kit, has just joined all those who blame a source without having the ability or understanding to challenge its information.

          • Kit Ingoldby

            I note that you still avoid the central point of the discussion.

            How can a currency be considered in anyway a ‘free market’ instrument when a State sets the nominal interest rate and controls the issuing of more money without any restriction?

            If you want any actual credibility you’ll have to address the actual matters under discussion.

          • greggf

            Refer to my post of 3 days ago Kit.
            That answered yours entirely, although I suggest you read carefully the words I used and desist from embellishing them.

          • Kit Ingoldby

            Actually, your post completely failed to address the issue of how a currency issued and controlled by a State is in anyway a free market instrument.

          • greggf

            No sh** Sherlock!
            It always pays to check your wording Kit, because you can’t seem to make up your mind between free market commodities and free market instruments!
            Whereas I was talking about free market currencies…..
            Have a nice Christmas.

          • Kit Ingoldby

            And you still fail to address the issue!

            Most amusing.

          • Christian Duplock

            Nothing wrong with Wiki………The user just needs to cross reference his findings, as you would with any source I hope.

  • Alex Yeates

    People hate the Euro because it is a poorly manipulated fiat currency. People love Bitcoin because it is a crypto currency that does not resemble the fiat form. Just because they are both single currencies does not mean that they are the same thing. It’s quite simple really…

    • greggf

      The Euro is not a fiat currency Alex.
      It’s exchangeable into gold or other currencies, it’s backed by the Bundesbank and not debauched (no QE).
      The Bitcoin is backed by cyber-space, aka empty-space!

      • NotYouNotSure

        Being backed by cyper-space is actually not such a bad backing, obviously bitcoin would vanish if the internet vanished, but such an event would be so disruptive that it would not matter if you had fiat currency.

        • ud6

          Yep. Indeed cryptocurrencies are likely to be the future, with the main hurdle being tax payments.. governments will close it down unless tax can be paid on transactions.

      • Paul Dillon

        Just because you can go to a gold merchant and buy gold with some Euro’s doesn’t stop it being a fiat currency. Gold is backed, like Bitcoin, by it’s supply being limited, but the Euro has unlimited supply. If it’s not debauched, why does its exchange rate v sterling stay roughly constant.?

        • greggf

          You seem to have a short memory Paul. Check its movements from, say 2000 to recently.

          • dodgy

            Yup. Varying between 1:1 and 1.5:1. That seems to be ‘roughly constant’ to me, given the huge financial upheavals over the last few years…

      • ud6

        The Euro is absolutely NOT backed by gold. The gold standard no longer exists. Indeed, if it did, then I would agree, that the Euro would not be a fiat currency (since it would actually represent gold). The Euro is actually a piece of paper that represents nothing because it has no fixed value.

        There will be a limited number of bitcoins, which is predetermined and cannot change (set by the algorithm).. 21 million I think. How many Euros are there? ah, that would be impossible to say because, even if money is not printed directly (as in the uk with quantitative easing) the amount of leverage for bank lending can be changed, and that is exactly the same (making money out of nothing). Until you can tell me how many are the maximum number of Euros that could exist, the Euro will be a fiat currency, and not a ‘resource’, as bitcoin is.

    • Roger Hudson

      Some people don’t like the Euro, or other similar fiats, because they are run by ‘suits’.

    • Paul Caple

      Bitcoin = Tulips.

    • Nothing about economics is quite simple really.

  • Liberty

    The bitcoin is favoured by anarchists, libertarians, etc because it is independent of governments but they ignore the consequences of widespread adoption. If it were adopted universally it would have the same effect as the gold standard or the Euro, individual economies would not be able to devalue when having problems with productivity, overspending by governments, etc and would have no control of interest rates to regulate debt. Devaluation has the effect of easing the adjustment by making investment in the underperforming economy cheaper, its exports cheaper and imports costlier thus maintaining economic activity and stimulating its economy.

    • ud6

      Yep.. that is why we would have DUAL currencies. With the economic crisis, Spain, Portugal and especially Greece started to adopt alternative currencies because people wanted to work, there were jobs to be done, but they had no money. The irony of super high youth unemployment, yet a high desire for goods and services in Spain just illustrates how ridiculous our current method of financial transactions is. We need alternatives.

  • Retired Nurse

    Enterprising firm in Holland are now selling edible Euros … – and they say we have to learn you can’t eat money eh!

  • Richard Stanford Brown

    “I’m probably committing all kinds of howlers and overlooking all kinds of key considerations” Yes, Matthew, yes you are.

    • Such as?

      • ud6

        such as making a comparison with a fiat currency which is not a fixed resource (euro), to something which is a fixed resource (bitcoin).

  • davidshort10

    Parris should understand that the price mechanism sorts out the problems of one currency across the regions. A Mars Bar certainly will cost less in Macclesfield than in Tunbridge Wells. Not so very long ago, a Newcastle-London-Newcastle rail ticket cost less than a London-Newcastle-London rail ticket following the logic that Geordies had less money than Londoners.

  • ud6

    Is this article a spoof?
    1. cannot be devalued to serve government needs (only a set amount will be produced 21million I think. It is better to think of bitcoin more like a resource, such as gold).
    2. can be transferred electronically without banking intermediaries
    3. Is not ‘lent’ by banks through leverage (i.e. lending money that doesn’t exist).

    We are all well aware that the current financial system was set up to make several individuals super rich by effectively extorting value from money from the labour used to produce that wealth. Bitcoin allows the wealth producer to actual benefit directly from that work, with no intermediaries. Also bitcoin is an alternative currency: we are not forced to make transactions in it, but we can choose to. This is especially important in economic crisis when Fiat currencies such as the euro are effected by banks lending money (at profit) that doesn’t actually exist.

    Bitcoin and the Euro are NOTHING alike.