Yanis Varoufakis, the former finance minister of Greece, lauded the idea and philosophy behind blockchain, but said Bitcoin and other cryptocurrencies cannot and should not replace currencies in a modern economy.
Varoufakis, who irked several of his European colleagues during the debt crisis in Greece in 2015 with his out-of-the box ideas, tells Greek Reporter that Bitcoin “can never be a currency, and it should never be a currency.”
If Bitcoin replaces fiat money “it would be catastrophic”
He says that Bitcoin and other cryptocurrencies lack the mechanism necessary to tackle crises, such as the Covid-19 pandemic and would do little to democratize economic life, as their proponents argue.
“Bitcoiners celebrate Bitcoin because is not state money but if you take this to its natural conclusion it means that it can never be a currency,” Varoufakis says and adds:
“Suppose that with a magic wand Bitcoin replaces fiat money. This will be catastrophic. We would all be now in very dire straights. What will happen when we have a pandemic and you need to increase the money supply? You cannot increase the supply of bitcoin because it is of fixed supply,” he tells Greek Reporter.
Yanis Varoufakis an admirer of blockchain
Varoufakis stresses that that Bitcoin and other cryptocurrencies can never be a substitute for fiat money. He admits however that he has been an admirer of the blockchain code, on which cryptos are based from the early days.
A blockchain is a specific type of database that stores data in blocks that are then chained together. As new data comes in it is entered into a fresh block. Once the block is filled with data it is chained onto the previous block, which makes the data chained together in chronological order.
Different types of information can be stored on a blockchain but the most common use so far has been as a ledger for transactions. In Bitcoin’s case, blockchain is used in a decentralized way so that no single person or group has control—rather, all users collectively retain control.
“When I first looked at the blockchain code, I thought: My God this is absolutely brilliant. A decentralized ledger which allows a complete record and full transparency while preserving anonymity in transactions. It is a piece of brilliance,” he says.
He remembers that back in the early 2010’s he wrote and article and gave interviews saying: “blockchain is a fantastic solution to the problem we have not yet discovered. But it is not the solution to the problem of money.”
Yanis Varoufakis: Bitcoin creates a sort of feudalism
He still maintains the same view. The problem with Bitcoin and even stablecoins, Varoufakis says, is who is going to run them. He argues that they have already lost credibility “in terms of how much real money– dollars, yen, euros — they keep in the bank in order to stabilize them.”
“Who is going to check on them? If it is the state, what is the point of having a stablecoin,” he tells Greek Reporter.
Stablecoin is an emerging cryptocurrency like Bitcoin but with the difference that its value is less volatile and backed up to any assets. The stablecoin finds application in many real-time businesses and tends to replace the place of bitcoin in the crypto globe.
Varoufakis says that Bitcoin and stablecoins cannot democratize the financial system and money, as their proponents argue.
“Money is always political. The question is whether it will be democratized or not. I am afraid that many of those who got really excited about Bitcoin, because they thought you could democratize money, are completely wrong.
“Given its fixed supply and given the fact that there is no democratic mechanism to determine who gets and how many Bitcoins, it creates a kind of feudalism run by the early adopters of Bitcoin.”
Central Bank digital money
Varoufakis, an economist and politician, who has been Secretary-General of MeRA25, a left-wing political party he founded it in 2018, is putting forward a different proposal to democratize money and cut-out the middle man, i.e. private banks. He calls for Central Bank cryptocurrencies.
“Central Bank cryptocurrencies, digital money is the way to go. That would kill more than two birds with one stone,” he says.
“We need to cut out the middleman: The Federal Reserve gives money to the banks they lend to corporations. Now what if the Fed wants to stimulate the economy and gives every tax payer in the US a digital account. The money goes directly to the Federal Reserve. The whole point is cutting the middleman.”
He argues that it is preposterous that the Wall Street has the monopoly of the payment system in the U.S.. He gives a simple example:
“Why we are assuming that when you want to buy a book from Amazon, you should go through some private bank? Why should the private bank be cut into your deal with Amazon? Why should they charge a fee when they do nothing? They do charge because banks have the monopoly of the payment system.
He is quick to point out that he is not proposing banning Wall Street, but that he wants private banks to offer citizens real services.
He says that all taxpayers could have have a digital account with the Fed based on the blockchain mechanism. For example, the Fed could put money into peoples’ accounts depending on whether it wants to stimulate the economy by using a universal dividend.
This way, Varoufakis says, we would all know how much money is in the financial system. “Politicians and governments could not pull a fast one over you as a citizen, while at the same time you will preserve complete anonymity.”
This is the way to go, he argues. “With a Fed digital reserve based on blockchain everybody would know how much money is in the system. That’s how the blockchain could help create a political version of cryptocurrency, that can be controlled democratically.”