Rand Paul’s nutty animosity toward the Federal Reserve and modern monetary policy in general are old news by now, so it’s not surprising that he’d be intrigued by the idea of cryptocurrencies, given that they aren’t controlled by a central bank. However, as Dave Weigel reports at Bloomberg Politics, the senator from Kentucky told a libertarian tech conference that he’s a bit unsure about the biggest cryptocurrency of all, bitcoin, because it isn’t backed by any kind of a commodity. (Paul is extremely taken with the concept of tying the value of the dollar to a basket of commodities, presumably including gold.) Instead, he likes the notion of companies issuing their own currencies, possibly backed by their own stock, so that they can cut out credit card companies and their fees.
With Bitcoin my concern always was whether or not something has real value. I could imagine a kind of coin that was exchangeable. This gets back to the whole idea of whether money has to be exchangeable for something to have value. What if Bitcoin or Wal-Coin was exchangeable for Wal-Mart stock? What if Wal-Mart, K-Mart, Kroger and maybe 20 retailers got together and issued a coin to deal against a basket of stocks? I think that might be something I’d be interested in investigating. If they do it with a goal of—I hope Visa and Mastercard are not listening—eliminating the credit card companies from the equation—what if Wal-Mart’s doubling their profits from 4 percent to something like 8 percent?
This isn’t a disastrous suggestion so much as a sort of silly one. Setting aside the existence of gift cards, which are basically currency you can redeem for goods and services at a specific retailer, companies can already go ahead and start their own virtual currencies if they really want. Amazon, for instance, already has. But, as Noah Smith notes, the fact that most of corporate America hasn’t jumped on the bandwagon suggests boardrooms see the idea as pointless. Moreover, I doubt many of them would want to deal with the inevitable regulatory headache of issuing “money” that could automatically be converted into shares of an index fund, as well as whatever weirdness that might do to their stock values.
The longer you think about it, though, the odder and more complicated the concept gets. Take pricing: Would the purchasing power of Walmart/Kroger/K-Mart bucks rise and fall with the index fund? Or would they always be worth $1 at the register? The first route could turn into a terrible deal for the companies, since customers would be able to buy more merchandise as their shares appreciated ($1 paid yesterday could turn into $2 of purchases tomorrow). If they chose the latter approach, they’d essentially be issuing a super stock, the value of which could only go up from the original purchase price, which would likely lead to hoarding.
Anyway, Rand Paul had a strange idea. In other news, it’s Thursday.