Citigroup Chief Economist on Bitcoin: Equilibrium Value Is Zero

Willem Buiter discusses the pros and cons of the leading cryptocurrency and blockchain technology
August 18, 2017 Updated: August 18, 2017


Despite working for the biggest bank in the world, Willem Buiter is not a fan of money. He called gold a 6,000-year bubble and thinks fiat currencies have an equilibrium value of zero.

“The fundamental value of an intrinsically valueless good is zero. For every fiat currency if its value is positive, it’s a bubble. There are good bubbles when they are stable. There are bad bubbles when they are exploding upwards and downwards,” he told The Epoch Times in July last year.

When asked about the spectacular rise of the cryptocurrency bitcoin to a $70 billion plus market cap this year, he gave it the same treatment as other forms of money [see the Video for the full discussion].

“It only has value because people believe it has value. There is an equilibrium value for bitcoin which is zero, like all fiat currencies,” he said.

Buiter thinks bitcoin is purely speculative and “not something that ordinary mortals should get anywhere near” and contrasted it to fiat money and gold, which he previously said he would own as part of a diversified portfolio.

“Gold has some intrinsic uses, fiat currencies issued by the government have at least a central bank that attempts to stabilize their value in terms of goods and services,” he said. “The problem with Bitcoin is that it is finite in amount, and it is very costly to mine, which is what makes it wasteful, like gold. Gold is basically a shiny bitcoin.”

However, Buiter, one of Wall Street’s most outspoken economists did present a nuanced view of the whole debate.

“As long as there is a class of people that wants to stay out of the sight of the authorities and which wants to transfer money over long distances, then cryptocurrencies … are going to be a part of what we do,” he said, acknowledging bitcoins and other cryptocurrency’s value as a medium of exchange.

Central Bank Use

And despite his opposition to bitcoin, Buiter is a fan of blockchain technology and thinks it may be used by central banks in the future to settle cross-border transactions.

“We don’t know how well it will scale, but it could be very useful for transactions between central banks, for cross border transactions, for entities that currently use centralized ledgers to make such transactions,” he said, calling bitcoin an “unfortunate start” to the whole blockchain revolution.

“You must not confuse the general concept of a decentralized ledger for trading ownership claims with the specific application of this decentralized ledger that we started with, which was bitcoin.”

If central banks were to adopt the technology, Buiter said scalability and security are an issue.

“Real world settlement systems that central banks work with might potentially be replaced by this decentralized ledger. But we still have to figure out how well it scales how secure it is. Because anything that can be coded can be hacked and it has to be robust.”

Twitter @vxschmid