An important advancement for our global civilization is the achievement of international stability of currencies. The goal is not stabilization of purchasing power, which is an impossible feat, but the removal of the political component of respective national money supplies.
We see this as achieved by either the scenario of Bitcoin becoming a ubiquitous global currency in conjunction with the hyperinflation of centrally managed national currencies, or via major central banks achieving international value stability between their national currencies by inflation targeting Bitcoin.
Consider a scenario in which Bitcoin becomes globally adopted as a currency. If the price trend in Bitcoin terms of a certain good in country A differs from that of the same good in country B, this would signal a difference between each country’s supply and demand curves of that certain good as opposed to differences between each country’s monetary policies.
In the second scenario, where central banks successfully value target Bitcoin, any differing price trends of a certain good between country A and country B would also reflect the differences between local supply and demand curves of that certain good in country A versus country B.
Both scenarios describe a comparable and favorable result in which the local price signals of goods are conveyed free of the noise created by political intervention in the supply of money, while still affording central banks the ability to enact monetary policy to fulfill their mandate of stabilizing their respective economies.
In the scenario where central banks inflation target Bitcoin, it becomes comparable to the ICPI (Industrial Consumption Price Index) that in his works entitled Ideal Money, John Nash argued could be used as a central banking value target for the optimization of each nation’s money supply.
The ICPI is a decentralized array of regularly adjusted commodity prices. We observe that Bitcoin fulfills the necessary apolitical consideration that such an array of prices seeks to provide. Moreover, it addresses the necessity of a mechanism for regular adjustment, while avoiding the introduction of a political component.
This political component is avoided by the novelty of Bitcoin’s difficulty adjustment algorithm explained in the following quote:
The price of any commodity tends to gravitate toward the production cost. If the price is below cost, then production slows down. If the price is above cost, profit can be made by generating and selling more. At the same time, the increased production would increase the difficulty, pushing the cost of generating towards the price.
The expected value of the instantaneous production and consumption of block header candidates is a price discovery of the costs required to produce a Bitcoin. This, in conjunction with the decentralized nature of mining, suggests a Bitcoin standard can serve as a perfect international basis for value stabilization not unlike gold standards observed in favorable economic times in our history.
Our proposal is that any changes to Bitcoin should be made with full consideration towards maintaining its ability to serve as a monetary policy basis comparable to a theoretical ICPI.