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vacuum
12th April 2013, 11:20 AM
Interesting article by the economist which compares bitcoin volatility to USD volatility.

http://www.economist.com/blogs/freeexchange/2013/04/exchange-rates?fsrc=rss

madfranks
12th April 2013, 12:10 PM
From the article:

"And if the Bitcoin economy manages to come up with a completely decentralised way to stabilise itself without that top-down maintenance, well, that would be something very interesting indeed. More probable: either Bitcoinia will remain a small, fringe economy thanks to inherent instability, or a stabilising financial structure will somehow grow within it."

Sparky
12th April 2013, 12:52 PM
We make fun of the fiat USD (or FRN), but in historical terms it has remained incredibly non-volatile. Yes, it has lost 95% of its purchasing power, but in a generally organized manner over a century's time. The problem with the USD is its insidious erosion of value with time based on the central banks inability to maintain a steady supply that matches production.

However, from a broad perspective, volatile it is not. In its most volatile periods, it's purchasing power varies by about 10% (usually in a downward direction) over the course of a year. Lesser currencies have exhibited this type of volatility in months, weeks, or even days. Bitcoin convertibility to USD routinely changes by 10% over a matter of minutes.

madfranks
12th April 2013, 02:09 PM
We make fun of the fiat USD (or FRN), but in historical terms it has remained incredibly non-volatile. Yes, it has lost 95% of its purchasing power, but in a generally organized manner over a century's time. The problem with the USD is its insidious erosion of value with time based on the central banks inability to maintain a steady supply that matches production.

However, from a broad perspective, volatile it is not. In its most volatile periods, it's purchasing power varies by about 10% (usually in a downward direction) over the course of a year. Lesser currencies have exhibited this type of volatility in months, weeks, or even days. Bitcoin convertibility to USD routinely changes by 10% over a matter of minutes.

Did you read the article? Quoted from it:

The dollar is one of history's most successful currencies, I think it's fair to say, and yet it, like virtually every floating currency, is prone to wild volatility. In the late 1990s, the trade-weighted dollar soared nearly 50%. It then turned on a dime, dropping 30%. Then, in a matter of weeks in late 2008 it jumped nearly 20%. Once again, that's the trade-weighted dollar, not an individual currency pair (which can be much more crazily volatile).

We didn't feel those crazy moves because everything here is denominated in dollars. One way of looking at it was that your wages may have gone up 20%, but so did your mortgage, groceries, fuel, everything else, because it's all denominated in dollars. Then when the dollar drops 30%, well, so did everything else so it balanced out. There is no equivalent in the bitcoin economy yet.

Sparky
12th April 2013, 07:36 PM
Yes madfranks, but the wild volatility described really wasn't so wild because it occurred over many years. The trade-weighted 50% soar in the 1990s took 5 years to happen. Actually, the moves in 1980-84 and 1984-88 were more severe.

One other thing... we are at risk again of mixing up currency moves (USD versus a basket of foreign currencies) with domestic price inflation.

Yes, in your example, there is not equivalent in the bitcoin economy yet. But I don't think there really is a bitcoin economy yet. There's simply an exchange rate, with a microscopic participation rate in the actual retail economy. Maybe that will change, but I'm not convinced. I could be wrong.