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Friday, November 10, 2017

Crypto News: What Keynes Knew About Bitcoin

What Keynes Knew About Bitcoin

While preparing antidotes for the widespread unemployment of his time and imagining a future age of leisure and abundance, John Maynard Keynes also worked out the interest rate on bitcoin. 

Amend that. Since cryptocurrencies weren't around in the 1930s, the famous British economist worked out the price at which bitcoin should be lent and borrowed, were it to be invented.

That interest rate is 57 percent. Before we get to the how and wherefore of that astonishing number, another qualifier. The original insight wasn't Keynes's. As part of his takedown of Friedrich Hayek's idea of a uniquely important interest rate for the economy, Italian academic Piero Sraffa posited that every commodity has its own borrowing cost. For example, there's such a thing as a cotton rate of interest. Keynes borrowed the concept for The General Theory of Employment, Interest and Money.

While nobody I know tries to work out how many bales or barrels it would cost to borrow some cotton or oil today, currency traders deal with implied interest rates all the time. Here's how it works. Suppose you’re marooned on an island with some Singapore dollars but the bank there can give you a deposit facility only in U.S. dollars. What the island does have, however, are foreign-exchange spot and forward markets. So on Nov. 9, you take 100 Singapore dollars, sell it for about 73 U.S. dollars, deposit the money in your greenback account for 50 days through Dec. 29, and simultaneously buy Singapore dollars in a forward contract for Dec. 29, using up all your principal and interest. 1


Full story at https://bloom.bg/2AyF9eI


Source: Bloomberg


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