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Bitcoin The Almighty Buck

Harvard Paper To Central Banks: Buy Bitcoin (politico.com) 110

Posted by msmash from the how-about-that dept.
A new working paper by Matthew Ferranti -- a fifth-year PhD candidate in Harvard's economics department and advisee of Ken Rogoff, a former economist at the IMF and the Federal Reserve Board of Governors who is now a Harvard professor -- has caused a minor splash. From a report: In it, Ferranti argues that it makes sense for many central banks to hold a small amount of Bitcoin under normal circumstances, and much more Bitcoin if they face sanctions risks, though his analysis finds gold is a more useful sanctions hedge. DFD caught up with Ferranti at Harvard's Cabot Science Library to discuss the working paper, which has not been peer-reviewed since its initial publication online late last month.

What are the implications of your findings?
You can read op-eds, for example in the Wall Street Journal, where people say, "We overused sanctions. It's going to come back to bite us because people are not going to want to use dollars." But the contribution of my paper is to put a number on that and say, "Okay, how big of a deal is this really? How much should we be concerned about it?" The numbers that come out of it are that yeah, it is a concern. It's not just you change your Treasury bonds by 1 percent or something. It's a lot bigger than that.

Rather than hedging sanctions risk with Bitcoin, shouldn't governments just avoid doing bad things?
There's not just one thing that gets you added to the U.S. sanctions list. If the only thing that could get you sanctioned, for example, was to invade another country, then most countries, as long as they don't plan to invade their neighbors, probably don't need to care about this at all, and so my research becomes less relevant. But it's kind of a nebulous thing. That might make countries pause and think about, "How reliable is the U.S?" The paper doesn't say anything about whether applying sanctions is a good or bad thing. There's a huge literature on how effective sanctions are. And I think the number that comes out of that is like a third of the time they work. Of course, they can have unintended consequences, like hurting the population of the country that you're sanctioning.

So why would a central bank bother with Bitcoin?
They're not correlated. They both sort of jump around, so there's diversification benefit to having both. And if you can't get enough gold to hedge your sanctions risk adequately -- think about a country that has very poor infrastructure, doesn't have the capability to store large amounts of gold, or countries whose reserves are so large that they simply cannot buy enough gold. Places like Singapore and China. You can't just turn around and buy $100 billion of gold.
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Harvard Paper To Central Banks: Buy Bitcoin More

Harvard Paper To Central Banks: Buy Bitcoin

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  • They guy doesn't know what he's talking about (Score:3, Insightful)

    by rsilvergun ( 571051 ) on Thursday November 24, 2022 @09:13AM (#63076804)
    either that or he's upside down on Bitcoin and trying to pump it.

    Sanctions work because our military backs them up. We're an empire, just like Rome before us. We extract tribute. We just use a lot of soft power (velvet glove over iron fist) and talk up Democracy a lot.

    The rest of the world isn't going to switch to China because they're worse than we are. There aren't any other alternatives. So as the saying goes, ain't nothin' gonna happen.

    • Re: (Score:2)

      by nagora ( 177841 )

      He used to work at the IMF. Of course he doesn't know what he's talking about.

    • If you're worried about sanctions, crypto might be a better bet than gold despite what this guy says. Gold might be a more stable hedge, but wouldn't Bitcoin be a more useful one? (which is the yardstick he uses). It's a lot easier to pay with BTC than it is with gold, especially if your country is rather isolated like N. Korea. And guess what: countries like that already like using BTC to bypass sanctions, with varying success.

      But yes, it totally does sound like the guy is trying to pump BTC.

      • Gold might be a more stable hedge, but wouldn't Bitcoin be a more useful one? (which is the yardstick he uses). It's a lot easier to pay with BTC than it is with gold

        Is it though? Like what things can I actually buy directly with Bitcoin? Especially at the central bank / nation state level. I don't Saudi Arabia is going to give me a tanker full of oil in exchange for Bitcoin. But they might in exchange for a big pile of gold.

        • Is it though? Like what things can I actually buy directly with Bitcoin?

          Strangely, I bought some parts for my car today from an online vendor, that I have used before, they offer to accept bitcoin as payment. I paid with a CC because I don't have any bitcoin.

          • Strangely, I bought some parts for my car today from an online vendor, that I have used before, they offer to accept bitcoin as payment.

            They accept payments in Bitcoin, but those get converted to hard cash by a payments processor. Much in the same way you don't pay in credit cards.

            How would this work for central banks, is anyone's guess.

      • Blockchain has shown itself to be much less opaque than many people believe & when it's traded in large volumes, i.e. for govt uses, it gets pretty hard not to notice.

      • One of the problems of Bitcoin is it is identity obfuscated, not anonymous, if you are using it to evade government sanctions, you are leaving a paper trail to anyone interested and powerful enough to work it out.

      • The author might want to see how El Salvador's move to cryptocurrency worked out [cnbc.com]:

        El Salvador’s bitcoin experiment: $60 million lost, $375 million spent, little to show so far

        The use of bitcoin in El Salvador appears to be low, as the currency has lost about 60% of its value since the experiment started and the country still faces plummeting economic growth and a high deficit. El Salvador’s debt-to-GDP ratio — a key metric used to compare what a country owes with what it generates

    • Nah. He's basically saying that Bitcoin is a good way launder money but not as good as gold. I'd argue that physical commodities with high value to weight/volume ratios, like precious metals & stones, are probably the easiest to trade & avoid detection. However, both digital & high value commodities become conspicuous when they're traded at volumes that countries' economies & trade typically work at. The USA still airlifts US$ by the tonne to various unstable parts of the world to get its bi

    • Politico "interview" concludes with this bit of brilliance.

      This is a framework for thinking about this topic.
      You may or may not agree with the assumptions built into it.
      Change the number and re-run the thing and you'll get results that are personalized to your beliefs.

      I.e. The crypto genius basically admits that he's full of shit with his analysis and that he's at the very least so deep into postmodernist "Who can really say what is is?" that the product of his paper are not worth the shit one would wipe off their ass with it.

      As for the author of the interview... It's Ben. [politico.com]
      And these are "Ben's Recent Stories".

      Harvard paper to central banks: Buy Bitcoin!
      The Middle East's crypto paradox
      The Middle East's crypto paradox
      A spirited defense of crypto
      Crypto has a moment â" in the Gulf
      6 takeaways from the FTX debacle
      Crypto midterms cheat sheet
      Free advice for Elon, from a free speech mogul
      Crypto looks to the Caymans
      Crypto, but for the climate

      Now, we can say with 100% certainty that without crypto Ben would be out of the job.
      What we can't with say

  • Going on a limb here.. (Score:5, Funny)

    by boulat ( 216724 ) on Thursday November 24, 2022 @09:13AM (#63076808)

    I'll just assume Matthew used his Harvard compute time to mine some bitcoin and bridge the gap in opportunity loss he incurred in between eating Cup Ramen Noodles and writing his little paper

  • SMRT (Score:1, Redundant)

    by stealth_finger ( 1809752 )
    I thought Harvard was supposed to be full of smart guys? Apparently not.

  • Slashdot's shilling of crypto scams is too much (Score:5, Interesting)

    by Lisandro ( 799651 ) on Thursday November 24, 2022 @09:19AM (#63076818)

    Why do they keep shining a spotlight on these clearly deluded people?

    And, FFS, who's in charge of /.'s Twitter account? It's doing so much Musk bootlicking these days, the guy doesn't buy shoe shine anymore.

    • Re: (Score:3, Interesting)

      by rsilvergun ( 571051 )
      I think I think this is a little different. This guy has enough credentials to lend credibility. That doesn't mean he's not a scammer. Look at Jordan Peterson. He's got all the credentials in the world. Although Peterson's credentials aren't exactly that worthwhile given that he's supposed to be an expert in substance abuse and when he had to deal with his own substance abuse issues he flew to Russia for a dangerous treatment that has been thoroughly discredited. So just because you managed to become a prof

      • Re:Slashdot's shilling of crypto scams is too much (Score:5, Informative)

        by Lisandro ( 799651 ) on Thursday November 24, 2022 @09:48AM (#63076894)

        I think I think this is a little different. This guy has enough credentials to lend credibility.

        The guy is a Harvard PhD student. Which is great for him, don't get me wrong, but presenting this as a "Harvard paper" is disingenuous... to say the least.

        • Re: (Score:1)

          by ceoyoyo ( 59147 )

          Where do you imagine Harvard papers come from?

          • Re:Slashdot's shilling of crypto scams is too much (Score:5, Informative)

            by Lisandro ( 799651 ) on Thursday November 24, 2022 @01:48PM (#63077364)

            Where do you imagine Harvard papers come from?

            Harvard's Deparment of Economics research publications. [harvard.edu]. The paper linked above is self-published research [google.com], and not Harvard-sponsored.

            • Re: (Score:3)

              by ceoyoyo ( 59147 )

              It's been submitted to ArXiv, which means it is supposed to have been submitted, or soon to be submitted to a journal for review. You can quibble over what "sponsored" means, but Harvard pays the author, his supervisor, and demands that their name be put on the paper (which it is).

              I don't know what your link to Harvard's research page is supposed to be about.

              This is (so far) non-peer reviewed research, which is a legitimate objection. Objecting based on the fact that it's written by a PhD student is not onl

              • Re: (Score:2)

                by Jack9 ( 11421 )

                > I hate to tell you, but pretty much every research paper is written by a grad student.

                The vast majority of grad student papers aren't impactful in any way, because they aren't the final thesis. The PHD thesis is the purpose of the university, which requires an addition to the body of human knowledge to be granted the PHD. People confuse papers that are PHD findings with run-of-the-mill papers that may not even relate to the student's focus of study.

                > Objecting based on the fact that it's written by

                • The fact that this is being purported as breaking news, is the same behavior. Pointing out that it's a random paper by a student seems to fit as a counterfactual contextualization.

                  ^^^^ This. Thank you.

                • Re: (Score:2)

                  by ceoyoyo ( 59147 )

                  You have some very odd ideas. Some of us actually went to grad school. If you stop writing papers with your thesis, well, hopefully you've headed for industry.

      • Ask anyone near him who's familiar with his history - Jordan Peterson's "credentials" are shit. A whiney religious nutbar apologist, a publicity hound, you know the type ...

        The real takeaway from this article should be don't get on the sanctions list, stupid! But can't expect a Harvard man to see that.

    • Slashdot keeps supporting crypto. I mean, look at the rowspace on the front page; this gets more space than many sponsored links. Occasionally something critical gets through, but it's not very frequent.

    • FFS, who's in charge of /.'s Twitter account? It's doing so much Musk bootlicking these days, the guy doesn't buy shoe shine anymore.

      Slashdot is now owned by Cryptocurrency shills who put their business name into the word filter to try to prevent dissent (and to prevent linking to their site!) and Musk is a CC pumper, therefore... you know the rest.

    • For it me it depends on what he means by "small amount". Having a small percentage of total assets in something risky as a hedge is not a bad idea. A few hundred thousand dollars of multimillions is something a bank could afford to lose. If by small he means billions then he is delusional.

    • Since Slashdot needed to find a paper by a Harvard student hyping crypto with a questionable analysis by going to the political gossip site Politico which pumps up crypto, I think it is fair to say that Slashdot is shilling for crypto.

      • Since Slashdot needed to find a paper by a Harvard student hyping crypto with a questionable analysis by going to the political gossip site Politico which pumps up crypto, I think it is fair to say that Slashdot is shilling for crypto.

        I wouldn't go that far. It's pretty obvious that anyone shilling for crypto is going to get the crap kicked out of them in the comments section.

        The pool of "greater fools" is shrinking rapidly.

  • 'So why would a central bank bother with Bitcoin? They're not correlated. ' That tells you he is not a serious academician. Anyone who looked at TLT and BTC in 2022 will tell you they are nearly 100% correlated.

    • Re:He assumes no correlation.. (Score:5, Interesting)

      by rsilvergun ( 571051 ) on Thursday November 24, 2022 @09:39AM (#63076870)
      What he's saying is that a central bank might buy cryptocurrency to evade sanctions because they can't get enough gold to evade those sanctions. That's a major no shit Sherlock for crappy small countries like Russia that are on the verge of collapse due to mismanagement. China not so much.

      And Russia only has 100 million people. I'm quite confident calling them small. And I'm also confident calling them a crappy country given what we just watched their military do. They need to get rid of their dictator if they want to become a real country again. That's damned hard to do. Not that I should be throwing stones. I'm an American and we came inches away from becoming a dictatorship

      • Re: (Score:2)

        by gtall ( 79522 )

        Russia has roughly 143 million people: https://en.wikipedia.org/wiki/... [wikipedia.org].

        That said, their economy is not large nor is it diverse. Without their oil and gas, they'd be even more lost than they are now. Once the world moves on from carbon fuels, they are screwed. This is what management by Kleptocracy get you.

        • It's still a country in decline, with the population projected to continue to shrink, Other countries are using immigration to combat population declines brought on by an aging demographic. Who the hell wants to move to Russia? They're forcing people in Ukraine to "immigrate" to Russia at gunpoint.

          With all the problems the world is facing, including climate going in the crapper and the future cost or rebuilding Ukraine, there will be neither the will nor the funds for a "Marshall Plan" for Russia.

          Chin

        • dictatorship. Remember that because Ron DeSantis and the GOP are trying to make one over here. They failed with Trump, so it's Ron's turn next.

      • That's a major no shit Sherlock for crappy small countries like Russia that are on the verge of collapse due to mismanagement.

        Are you sure? Russia's economy shrank by ~5% since the war began.

        Bitcoin lost 56% of its value in that exact same period.

      • What he's saying is that a central bank might buy cryptocurrency to evade sanctions because they can't get enough gold to evade those sanctions. That's a major no shit Sherlock for crappy small countries like Russia that are on the verge of collapse due to mismanagement.

        Unless I'm misreading, I think the point was for the countries imposing the sanctions to buy crypto (presumably before announcing the sanctions). This would drive up the price of crypto making it more costly for the sanctioned country to b

  • Central Banks can't get the Giant's gold without magic bitcoin beans.

    Only costs one dairy cow and most central banks have dozens of dairy cows.

  • Why else would they encourage central banks to invest in shrinking digital dust?

    Even if there were some value to cryptocurrencies, why would countries use an existing one, inflated by speculation, instead of creating their own?

  • empty headed (Score:4, Insightful)

    by argStyopa ( 232550 ) on Thursday November 24, 2022 @09:33AM (#63076852) Journal

    This is the sort of stupid empty speculation that phd candidates can indulge in because nobody listens to them.

    Any bank seriously worried about US sanctions it's not going to benefit from putting 0.1% of their holdings into bitcoin. Further, as much as the chittering classes may natter on about concerns about the US's stability or the dollar, the US is still demonstrably the safest, most stable country in the world in terms of short, medium, and long term outlooks by a large degree.

    Central bankers don't have the leisure to indulge in dorm-room wanking like this.

    • Re: (Score:3)

      by Shaeun ( 1867894 )
      I think that any bank in danger of sanctions should put their money into bitcoin. Then we'd be able to tell who is dealing with them and take all their stuff too! Seems like a 'Win' for the US.

      All things considered this is terrible advice. But it'll be fun to watch.

    • Further, as much as the chittering classes may natter on about concerns about the US's stability or the dollar, the US is still demonstrably the safest, most stable country in the world in terms of short, medium, and long term outlooks by a large degree.

      Until it's March 2003 and you're Saddam Hussein.

      • I mean it's a fair point, but I think one could reasonably assume that we're not talking about countries that DELIBERATELY intend to be in direct conflict with the US.

    • I especially liked the bit "think about a country that has very poor infrastructure, doesn't have the capability to store large amounts of gold" which indicates he is unclear on what gold actually is, and what is required to store it.

      At current prices a billion dollars in gold is almost exactly one cubic meter in volume and in reality the space required to store... would be about one square meter of floor space on a nice solid concrete slab, like a bank vault. Any decent sized bank vault could probably hand

  • your opinion, man! (Score:5, Interesting)

    by e**(i pi)-1 ( 462311 ) on Thursday November 24, 2022 @09:44AM (#63076886) Homepage Journal
    "Yeah, well, that's just, like, your opinion, man". Why is this even a story? Because he is a PhD student at a university? In any case, banks and credit card companies at any time could decide to ban crypto currencies. China and 8 other countries started to ban crypto. Independent Cryptocurrency companies also do not produce that warm fuzzy feeling of confidence , as the last few weeks have shown.

  • Don't Banks Deal With Enough Fake Currency (Score:3)

    by DewDude ( 537374 ) on Thursday November 24, 2022 @10:11AM (#63076926) Homepage

    We don't need more. We sure as fuck don't need central banks promoting an unregulated piece of garbage.

  • Surely (Score:2)

    by sjames ( 1099 )

    Surely a bank would want a reserve that holds it's value better and preferably a useful commodity that has a floor utility value.

  • Transparent (Score:3)

    by rickb928 ( 945187 ) on Thursday November 24, 2022 @01:22PM (#63077308) Homepage Journal

    All this is to either suck the fiat currency hegemony into propping up Bitcoin in particular, and crypto in general, or to set a support mechanism in place to hold up crypto in the midst of its exposure and collapse.

    Nope. Moderately intelligent bankers know better, I hope. Crypto is an ephemeral currency, without even the 'faith and credit' of a nation claiming to support it. There is truly no there there. Let it boil dry.

  • Did everyone forget that crypto currency is based on a ledger? And that ledger traces to whom and where from transactions are made?

  • Me to Harvard (Score:4, Insightful)

    by wakeboarder ( 2695839 ) on Thursday November 24, 2022 @02:29PM (#63077444)
    Stop your professors from selling out to the crypto bros. This is basically a paid advert for crypto, and they are getting desperate to prop up the price

    • Maybe not a paid ad. but those who want to join one of those crypto companies will be able to point at the "research" they done to point out that they made some high profile media noise in favour of crypto and so should be hired for some nice salaries.

  • that Harvard PhDs can give stupid advice, or maybe he is in on the scam

  • Welcome to Slashdot, where it's all Crypto-bro shit all the time.

  • This article is utter rubbish.

  • This is literally just doomsday prepping on a national scale, and it's not even a good method. He admits himself that gold would be a better stock to hold.

  • The summary makes a really good point that the sanctions are something more to be feared than you might think at first glance.

    It's not just "don't invade other countries", but all sorts of other more seemingly minor things that could get you sanctioned - like for example buying oil from Russia. Or just import/export policies the U.S. does not like.

    It's just too risky to have all your eggs in a basket that the U.S. can essentially take from you any time they like, as at this point U.S. foreign policy has be

  • The promulgators of bitcoin want the central banks to hold crypto currency to give some validation and value to these ephemeral things. Crypto currency have no inherent value. Central bank backed currency has, at least, the faith and support of the issuing government. Millions, perhaps billions, of people know what $1 will buy but what does a bitcoin get you? You can trade it in for dollars with the gullible right now, but tomorrow it might buy nothing.

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