Decryption | Bitcoin, the dollar and inflation: myths and reality

Aspiring Conservative Party leader Pierre Poilievre promoted cryptocurrency by offering a choice between bitcoin and the Canadian dollar. This is a bad idea, according to the experts we interviewed.

Posted at 5:00

Elena Baril

Elena Baril
The print

A refuge against inflation?

Replacing the Canadian dollar with bitcoin would not protect consumers from inflation, says Alexandre Roch, a financial system specialist and professor at the University of Quebec in Montreal. “Quite the opposite. The Canadian dollar is a very stable currency. We had an inflation rate of between 5 and 6% for a year, but the value of bitcoin varies more in a few days,” he explains.

There is no reason to replace a stable currency like the Canadian dollar, the US dollar or the euro with bitcoin, also believes Martin Lalonde, president and founder of Rivemont, a portfolio management company that offers alternative investment strategies in cryptocurrencies. “But in countries where there is hyperinflation or capital controls, like Venezuela or China, it can be justified,” he tempers him.


PHOTO FRANÇOIS ROY, LA PRESSE ARCHIVE

The Bank of Canada is responsible for regulating credit and increasing or decreasing the money supply as the economy evolves.

A threat of deflation

The Bank of Canada, like other central banks, is responsible for regulating credit and money. It has the power to increase the number of banknotes in circulation, which is sometimes called the power to print money. This is not the case with bitcoin. Since its inception it was decided that there would be 21 million units of bitcoin, no more, of which 90% has already been created by minors. This could suggest that bitcoin, unlike the dollar, is not inflationary.

In a way, that’s true, says Stephen Gordon, an economist specializing in monetary affairs at the Université Laval. Too much money is a problem, but not enough, he says. “In a growing economy, we need more money to do our transactions,” he explains. It is the Bank of Canada’s job to increase or decrease the money supply based on the evolution of the economy.

On the contrary, bitcoin exposes the economy to deflation, according to him, or a long drop in prices that slows down consumption and ends up paralyzing growth.


PHOTO BENOIT TESSIER, REUTERS ARCHIVES

Every bitcoin transaction must be validated, which takes time and carries fees.

Facilitate transactions

Direct transactions, without intermediaries and without commissions allowed by bitcoin, are a bit of a myth, believes Alexandre Roch. In fact, every transaction made in bitcoin must be validated, which takes time and involves fees. We need intermediaries.

“Without wishing to defend the banks, we can say that the payment system works well,” he says, noting that most transactions are done virtually, with electronic payment tools that require less energy than mining bitcoin.

In fact, the payment system we use every day is more efficient and less expensive than bitcoin, says Stephen Gordon.

For some types of transactions, such as transferring money from one country to another, proceeding in bitcoin can be less expensive, notes Alexandre Roch.

However, bitcoin provides its users with anonymity which promotes illicit transactions and tax evasion, which is the main drawback of cryptocurrencies. “The reason there are rules is to protect the population,” says the professor, who notes that nearly half of cryptocurrency exchanges are used for illegal activities.

More and more countries are considering regulating the use of cryptocurrencies to prevent their use for criminal purposes, which could prove difficult because the system was designed to exist outside the regulatory system.

What good is it then?

Designed as a trading currency, bitcoin and other cryptocurrencies are used very little to transact.

The only reason to buy bitcoins is the hope of being able to resell them at a higher price to someone else.

Stephen Gordon, economist specializing in monetary affairs at the Université Laval

According to him, cryptocurrencies emerged when interest rates had been low for a long time. “People are always looking for opportunities for returns,” he says, and many have jumped on bitcoin.

This is also the opinion of Alexandre Roch, for whom the bitcoin craze has all the features of a speculative bubble. “The value of bitcoin is based on the network, a bit like Facebook, he explains. If another network comes along and becomes more popular, it will lose its value. ”

Manager Martin Lalonde sees things differently. The future of cryptocurrencies must be a keeper of value, he says. “Bitcoin could become digital gold,” he says. Accepted everywhere, he has all the advantages of gold without the disadvantages. But no, it won’t replace currencies that do their job well, he says.


PHOTO PATRICK DOYLE, THE CANADIAN PRESS

Pierre Poilievre, candidate for leadership of the Conservative Party

I want to take control of money from politicians and bankers and give it back to the people. […] We need to give people the freedom to choose another currency. If the government wants to abuse our cash, then we should have the right to switch to another currency of better quality.

Pierre Poilievre

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