Niall Ferguson Calls For US Adoption of Bitcoin Off The Chain

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To investors,

Niall Ferguson, the famous historian, published an important op-ed in the Bloomberg Opinion section yesterday. The piece was titled “Bitcoin Is Winning the Covid-19 Monetary Revolution” and the sub-header read “The virtual currency is scarce, sovereign and a great place for the rich to store their wealth.

The argument laid out by Ferguson is noteworthy not only for what was written, but also because of who is writing it. For those that don’t know, Niall Ferguson is currently the Milbank Family Senior Fellow at the Hoover Institution at Stanford University. He was previously a professor of history at Harvard, New York University and Oxford. Ferguson was named one of Time magazine’s 100 most influential people in the world in 2004 and has written a handful of books, including the The Ascent of Money, which was published in 2008 and examines the history of money, credit, and banking.

In the Bloomberg piece, Ferguson makes a strong argument that “We are living through a monetary revolution so multifaceted that few of us comprehend its full extent. The technological transformation of the internet is driving this revolution. The pandemic of 2020 has accelerated it.” He goes on to compare the price movements of US dollars, gold, and Bitcoin. This analysis has been done over and over again by investors, so it isn’t novel or overly interesting at this point.

However, I found Ferguson’s historical context around monetary evolution to be very interesting. He wrote:

“First, we should not be surprised that a pandemic has quickened the pace of monetary evolution. In the wake of the Black Death, as the historian Mark Bailey noted in his masterful 2019 Oxford Ford lectures, there was an increased monetization of the English economy. Prior to the ravages of bubonic plague, the feudal system had bound peasants to the land and required them to pay rent in kind, handing over a share of all produce to their lord. With chronic labor shortages came a shift toward  fixed, yearly tenant rents paid in cash. In Italy, too, the economy after the 1340s became more monetized: It was no accident that the most powerful Italian family of the 15th and 16th centuries were the Medici, who made their fortune as Florentine moneychangers.

In a similar way, Covid-19 has been good for Bitcoin and for cryptocurrency generally. First, the pandemic accelerated our advance into a more digital word: What might have taken 10 years has been achieved in 10 months. People who had never before risked an online transaction were forced to try, for the simple reason that banks were closed. Second, and as a result, the pandemic significantly increased our exposure to financial surveillance as well as financial fraud. Both these trends have been good for Bitcoin.”

This historical context is important as we think through what is happening at the moment. Ferguson’s argument is that Bitcoin is quickly taking the lead position as a viable store-of-value for individuals and organizations around the world. He isn’t a blind believer by any means, because he dedicated a good portion of the article to some of the “defects” of Bitcoin from his perspective (slow, high cost, energy consumption). It is good to see a healthy amount of skepticism or detraction in the same piece that ultimately concludes a positive outlook for the digital currency.

Regardless of the accuracy of Ferguson’s defect analysis, he goes on by saying:

“But these disadvantages are outweighed by two unique features. First, as we have seen, Bitcoin offers built-in scarcity in a virtual world characterized by boundless abundance. Second, Bitcoin is sovereign.”

This is interesting because Bitcoin is not the only digital currency trying to capture global adoption. Ferguson dedicates a section of his article to central bank digital currencies:

“At the same time, the People’s Bank of China has accelerated the rollout of its digital currency. The potential for a digital yuan to be adopted for remittance payments or cross-border trade settlements is substantial, especially if — as seems likely — countries participating in the One Belt One Road program are encouraged to use it. Even governments that are resisting Chinese financial penetration, such as India, are essentially building their own versions of China’s electronic payments systems.

Some economists, such as my friend Ken Rogoff, welcome the demise of cash because it will make the management of monetary policy easier and organized crime harder. But it will be a fundamentally different world when all our payments are recorded, centrally stored, and scrutinized by artificial intelligence — regardless of whether it is Amazon’s Jeff Bezos or China’s Xi Jinping who can access our data.”

This excerpt comes simultaneous to Christine Lagarde, President of the ECB, writing an article titled “The future of money – innovating while retaining trust.In her piece, Lagarde hits on many of the same historical points as Ferguson:

“Throughout history, the nature of money has evolved in response to socioeconomic changes. But the functions of money – as a means of exchange, a unit of account and a store of value – have remained the same for centuries.

One reason why money first emerged was to overcome the limitations and inefficiencies of bartering. As economies became more specialised, trade became all the more essential, and a universal medium of exchange was needed to facilitate it. Coins made from (precious) metals fulfilled that purpose for centuries.

But with the development of international trade, coins became increasingly impractical because they are difficult to store and transport in large volumes.

This led to the next phase in the evolution of money through medieval times into the late middle ages and early modern times. Developments included the advent of Templar’s credit notes in France, private giro banking in Italy, bills of exchange and promissory notes, and the first predecessors of paper money.”

Lagarde then goes on to talk about the potential creation of a central bank digital euro:

“The ECB wants to ensure the euro remains fit for the digital era. Early this year, the Governing Council decided to explore the possibility of issuing of a digital euro – digital central bank money for retail payments, in other words.

The Eurosystem is assessing the implications of the potential introduction of a digital euro, which in legal terms would be a liability of the central bank. In October the ECB published the Report on a digital euro and launched a public consultation.

But why issue a digital euro, if other forms of (private) digital money are already available?

Central bank money is unique. It provides people with unrestricted access to a simple, essentially risk-free and trusted means of payment they can use for any basic transaction. But for retail use it is currently only offered physically in the form of cash.

A digital euro would complement cash and ensure that consumers continue to have unrestricted access to central bank money in a form that meets their evolving digital payment needs.

It could be important in a range of future scenarios, from a decline in the use of cash to pre-empting the uptake of foreign digital currencies in the euro area. Issuing a digital euro might become necessary to ensure both continued access to central bank money and monetary sovereignty.”

It is essential that you pay attention to what Lagarde is highlighting here. She mentions co-existence of digital and legacy money, while also talking about preventing the uptake of foreign digital currencies by citizens of the Eurozone. This is the talk track of someone who is thinking about the offensive and defensive advantages that can be captured by issuing a digital currency.

The ECB is not the only central bank that is thinking about this. The Saudi Central Bank (SAMA) and the Central Bank of the United Arab Emirates (CBUAE) published the results of their joint central bank digital currency study yesterday. These two central banks essentially found that using a digital currency on a distributed ledger would drive costs lower and increase settlement times. This won’t be a surprise to anyone who is watching this space, but it is important that the central banks are going through the steps necessary to reach the foregone conclusion.

So with everyone, from China to Europe to the Middle East, working on central bank digital currencies, what exactly does Niall Ferguson conclude with? A specific call-to-action for President Elect Joe Biden and his administration to embrace Bitcoin.

“Rather than seeking to create a Chinese-style digital dollar, Joe Biden’s nascent administration should recognize the benefits of integrating Bitcoin into the U.S. financial system — which, after all, was originally designed to be less centralized and more respectful of individual privacy than the systems of less-free societies.”

This is a major step in the right direction to have one of the world’s most respected historians and monetary experts calling for Bitcoin’s eventual adoption. Ferguson clearly understands the pros and cons, along with the potential competition from legacy technology and forward-thinking central banks, yet he arrives at the powerful conclusion that Bitcoin will be the final solution.

Time will tell whether Ferguson is correct here, but it sure feels good to have him sharing these thoughts in a Bloomberg Opinion piece as we move towards a new Bitcoin all-time high in US dollar price.

Have a great start to your week. Talk to everyone tomorrow.


This installment of The Pomp Letter is free for everyone. I send this email to our investors daily. If you would also like to receive it every morning, join the 92,000 other investors today.

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