Agreed. And hyperinflation is terrible when it happens, but quite rare in modern economies. Double-digit declines in bitcoin values are, however, quite common. It would be profoundly irresponsible to encourage the poor of Africa to make the switch at this point.
Hard to take this article seriously when the first few paragraphs are talking about the hyperinflation of the currency of Zimbabwe, then trying to rectify that with bitcoin, which can fluctuate hundreds of USD in the span of a couple of hours.
It specifically mentions M-Pesa, which is already used by the majority of the continent, but trying to improve and go all-in on something established and accepted like that wouldn't be web 2.0 enough.
You could actually use bitcoin essentially as the payment "rails" for a transaction, so that people don't hold bitcoin and immediately then convert back into local currency, and therefore get around the price changes. Companies like coinbase already allow merchants to do this. Also, bitcoin prices will stabilize over time & as more people use the currency.
I also found it a bit hard to swallow. The article mentions entire towns without access to electricity. Its hard to imagine a digital currency being preferable in those conditions.
Bitcoin matters for Africa, and all other continents... and this article contains a lot of nonsense. Yes, Zimbabwe's hyperinflation was caused in part by printing money - but it seems a grossly unfair simplification to present that as the root cause of Zimbabwe's economic woes. To quote:
Gideon Gono, governor of the Reserve Bank of Zimbabwe, increased the supply of money enormously against the advice of economists, but with full support from President (read: dictator) Robert Mugabe. As any basic textbook of economics posits, the Zimbabwean dollar fell in value and hyperinflation followed
Also:
in many cases this was caused by impulsive, foolish “human error” in the form of printing money without thought for the consequences
It sound's like we're blaiming the whole thing on stupid Zimbabweans (too stupid to read a basic textbook!) who ignored the advice of their western advisors.
Let's not forget that until 1980, Zimbabwe was ruled by a white minority apartheid government. The country that Mugabe's ZANU party inherited was one where a few thousand white farmers owned the majority of all the fertile land in the country. Mugabe's land reform policies were badly implemented and caused the collapse of the country's food production, which seems to have to led to the collapse of the banking sector. On top of that their economy had to deal with sanctions from the US and EU. By the time Zimbabweans were printing money, their economy was already in a dire situation.
Anyway, the gist of this article is that stupid economic policy can lead to hyperinflation. Ok. So why the generalization about Africa? Does the author think that stupid economic policy is something common to African countries? Does the author know that the IMF is predicting that four of the world’s six fastest-growing economies will be in sub-Saharan Africa this year? [1]
Incidently the article doesn't mention the one area in which I think Bitcoin will be very useful for large parts of Africa: remittances [2].
Thank you for this comment, I was about to post something very similar. The thing about hyperinflation is that people are hypnotized by the many zeros that are involved and ignore the underlying root causes.
Zimbabwe suffered economically for reasons entirely unrelated to hyperinflation. Hyperinflation was just a kind of release valve for the economic mess that already existed before it started. Had Zimbabwe used Bitcoin at the time [0], the well-intended but badly implemented land reform would still have caused economic collapse and wide-spread suffering. The symptoms would have been slightly different, but they would have been just as bad.
The same could be said for the Weimar republic hyperinflation of the 1920s, by the way. Hyperinflation was a release valve for the economic problems that Germany was already in, and ultimately helped demonstrate that the war debts imposed from World War I were onerous and should be forgiven. Arguably, using Bitcoin would have made the long-term situation worse for Germany back then.
[0] Obviously completely hypothetical since Bitcoin did not exist, but that's beside the point.
I've become skeptical about bitcoin for remittances. The biggest cost in remittance architecture isn't the electronic transfer, but distributing cash. Western Union, e.g., maintains a network of over 1 million agents - banks, post offices, dry goods stores, mobile top-up kiosks, etc. - so that recipients, often in rural areas, can collect their cash. Bitcoin does nothing to reduce these costs.
(Unless you're assuming recipients in Africa et al. will keep their money in bitcoin, which is ridiculous at this point, and will be for many, many years.)
Since bitcoin is a decentralized currency that is controlled by algorithms rather than one or a small handful of individuals, there is no option to simply “print more money”. This precludes governments from instituting reckless monetary policies and subverting entire economies on little more than a whim.
Countries will just have fiscal rather than monetary disasters in such situations. Look at Greece. Really, hyperinflation is a pretty rare occurrence - obviously it's bad, but bitcoin boosters and gold bugs seem to think it's practically the norm or that all fiat currencies eventually fall victim to it. This is simply not the case.
What's more, governments usually don't wake up one morning and decide to start hyperinflation out of the blue. Instead, hyperinflation is usually the result of economic disasters that came before.
In fact, I would "fix" what you wrote, because the fiscal disasters are typically a required precondition for the monetary disasters. When using Bitcoin, the countries might be limited to fiscal disasters, but - as the example of Greece shows - those are the real problem anyway.
The 'no central bank' concept in bitcoin is interesting academically to economists and people with strong opinions on the matter. IMO, it's not the most important part of bitcoin for countries like Zimbabwe or other developing economies.
(1)Bitcoin is a long way from being a steady, safe currency that solves currency instability problems. (2) I don't think it's all that different from simply using foreign currency, which is what people in countries with a failing currency do.
IMO what is interesting about bitcoin and bitcoin in developing countries in particular are its basic advantages: digital, transaction cost free cash. This may open up the door to all kinds of activities held back by the non access to financial services. Remittances, long distance commerce, saving, etc. Remember the splash microlending made? A lot of later studies (after the initial noble prizes and mass interest) found that micro-loans acted as (poor) substitutes for other basic financial services like savings or insurance. It's hard to save when everyone in your tight knit extended family is broke and owed favors. You just can't keep your penny jar tucked away. But, paying back your loan is not optional so microloans are the only way of doing big ticket purchases, even if interest rates are very high.
Financial infrastructure is important. If bitcoin (or similar) can be used to build low cost financial services available everywhere it will have made a big difference. The hyperinflation stuff is very theoretical for the near future and uncertain in the farther off future.
*Even though there doesn't tend to be a lot of talk about savings as a way out of poverty, I think that thinking back on many of the old anecdotes from now developed economies, those people credited savings as a way of making progress on their family's financial situation.
The GPU's burden. Infrastructure intense script kiddie toy currency to enlighten technically deprived cultures of Africa. Funny how Africa's problems will enrich the hoarding kiddies.
yes, bitcoin's slow-inflation-soon-to-become-deflation is preferable to hyperinflation. no, slow-inflation-soon-to-become-deflation is not preferable to a well-managed economy.
A fundamental flaw in many people's understanding of bitcoin's "advantages" is this notion of "not printing money" being a uniquely good idea.
Yes, extremely bad monetary policy is worse than having no monetary policy (as in the bitcoin economy). But the case of no monetary policy being better than even a moderately bad monetary policy is much harder to make.
I also don't see why so many people believe that there won't ever be an increase in the money supply from bitcoins. With a growing market capitalization and growing number of businesses dependend on Bitcoin, financial services and products around btc are becoming more common. Virtually no contracts, even in the bitcoin world, are instantaneous, thus investment banking will evolve and distort the idea of a new gold standard.
"Zimbabwe suffered from the second worst hyperinflation on record; it reached an absurd 231,000,000% in the summer of 2008. That means that the price of goods doubled every 25 hours."
Unless the hyperinflation lasted only about 3 weeks, then that statement is obviously wrong.
2^21 * 100 = 209,715,200
Enabling peer-to-peer transactions - whether via bitcoin in its current form or a successor - opens up economies for untold millions without stable, trustworthy or conventional banking. Most people, even in the third world, have access to cell phones.
This is why I am impressed with Ripple. They are not interested in creating an alternative currency. They are solely about facilitating peer-to-peer transactions. And it doesn't require mining or proof-of-work. They compare it to SMTP for payments.
[+] [-] hawkharris|12 years ago|reply
The current title makes the article sound like a generalization about all the economies in a continent.
[+] [-] barretts|12 years ago|reply
[+] [-] uonyx|12 years ago|reply
[+] [-] res0nat0r|12 years ago|reply
It specifically mentions M-Pesa, which is already used by the majority of the continent, but trying to improve and go all-in on something established and accepted like that wouldn't be web 2.0 enough.
[+] [-] ariannahsimpson|12 years ago|reply
[+] [-] mrb|12 years ago|reply
Volatility IS DECREASING over time, as the economy and volume/market depth on exchanges are increasing. This has been explained many times on HN.
[+] [-] ericecook|12 years ago|reply
[+] [-] natrius|12 years ago|reply
M-Pesa uses local currencies, which frequently lose their value in non-OECD countries.
[+] [-] aaron695|12 years ago|reply
You can't just go because it dropped or rose 30% in one day that's it's inflation rate over a year, talk about cherry picking.
[+] [-] blushrt|12 years ago|reply
[+] [-] rowanseymour|12 years ago|reply
Gideon Gono, governor of the Reserve Bank of Zimbabwe, increased the supply of money enormously against the advice of economists, but with full support from President (read: dictator) Robert Mugabe. As any basic textbook of economics posits, the Zimbabwean dollar fell in value and hyperinflation followed
Also:
in many cases this was caused by impulsive, foolish “human error” in the form of printing money without thought for the consequences
It sound's like we're blaiming the whole thing on stupid Zimbabweans (too stupid to read a basic textbook!) who ignored the advice of their western advisors.
Let's not forget that until 1980, Zimbabwe was ruled by a white minority apartheid government. The country that Mugabe's ZANU party inherited was one where a few thousand white farmers owned the majority of all the fertile land in the country. Mugabe's land reform policies were badly implemented and caused the collapse of the country's food production, which seems to have to led to the collapse of the banking sector. On top of that their economy had to deal with sanctions from the US and EU. By the time Zimbabweans were printing money, their economy was already in a dire situation.
Anyway, the gist of this article is that stupid economic policy can lead to hyperinflation. Ok. So why the generalization about Africa? Does the author think that stupid economic policy is something common to African countries? Does the author know that the IMF is predicting that four of the world’s six fastest-growing economies will be in sub-Saharan Africa this year? [1]
Incidently the article doesn't mention the one area in which I think Bitcoin will be very useful for large parts of Africa: remittances [2].
[1] http://www.economist.com/news/21588896-some-worlds-fastest-g...
[2] http://www.rnw.nl/africa/article/hello-bitcoin-goodbye-weste...
[+] [-] nhaehnle|12 years ago|reply
Zimbabwe suffered economically for reasons entirely unrelated to hyperinflation. Hyperinflation was just a kind of release valve for the economic mess that already existed before it started. Had Zimbabwe used Bitcoin at the time [0], the well-intended but badly implemented land reform would still have caused economic collapse and wide-spread suffering. The symptoms would have been slightly different, but they would have been just as bad.
The same could be said for the Weimar republic hyperinflation of the 1920s, by the way. Hyperinflation was a release valve for the economic problems that Germany was already in, and ultimately helped demonstrate that the war debts imposed from World War I were onerous and should be forgiven. Arguably, using Bitcoin would have made the long-term situation worse for Germany back then.
[0] Obviously completely hypothetical since Bitcoin did not exist, but that's beside the point.
[+] [-] barretts|12 years ago|reply
(Unless you're assuming recipients in Africa et al. will keep their money in bitcoin, which is ridiculous at this point, and will be for many, many years.)
[+] [-] anigbrowl|12 years ago|reply
Countries will just have fiscal rather than monetary disasters in such situations. Look at Greece. Really, hyperinflation is a pretty rare occurrence - obviously it's bad, but bitcoin boosters and gold bugs seem to think it's practically the norm or that all fiat currencies eventually fall victim to it. This is simply not the case.
[+] [-] nhaehnle|12 years ago|reply
In fact, I would "fix" what you wrote, because the fiscal disasters are typically a required precondition for the monetary disasters. When using Bitcoin, the countries might be limited to fiscal disasters, but - as the example of Greece shows - those are the real problem anyway.
[+] [-] zamalek|12 years ago|reply
Furthermore the country has abandoned its native currency and is using USD/GBP/ZAR in any case.
Economic freedom is irrelevant when there is a gun being held to your head [in a very literal sense].
Disclaimer: I lived there for 14 years of my life, and visit my family there often.
[+] [-] netcan|12 years ago|reply
(1)Bitcoin is a long way from being a steady, safe currency that solves currency instability problems. (2) I don't think it's all that different from simply using foreign currency, which is what people in countries with a failing currency do.
IMO what is interesting about bitcoin and bitcoin in developing countries in particular are its basic advantages: digital, transaction cost free cash. This may open up the door to all kinds of activities held back by the non access to financial services. Remittances, long distance commerce, saving, etc. Remember the splash microlending made? A lot of later studies (after the initial noble prizes and mass interest) found that micro-loans acted as (poor) substitutes for other basic financial services like savings or insurance. It's hard to save when everyone in your tight knit extended family is broke and owed favors. You just can't keep your penny jar tucked away. But, paying back your loan is not optional so microloans are the only way of doing big ticket purchases, even if interest rates are very high.
Financial infrastructure is important. If bitcoin (or similar) can be used to build low cost financial services available everywhere it will have made a big difference. The hyperinflation stuff is very theoretical for the near future and uncertain in the farther off future.
Links on this page are a good reference for the academic thoughts on microfinance and financial services as development tools during the recent 3-4 surge in interest on the topic: http://www.econtalk.org/archives/2011/04/munger_on_micro.htm...
*Even though there doesn't tend to be a lot of talk about savings as a way out of poverty, I think that thinking back on many of the old anecdotes from now developed economies, those people credited savings as a way of making progress on their family's financial situation.
[+] [-] interstitial|12 years ago|reply
[+] [-] josefresco|12 years ago|reply
http://www.gatesfoundation.org/What-We-Do/Global-Development...
Also this: http://www.reddit.com/r/IAmA/comments/1xj56q/hello_reddit_im...
[+] [-] 21echoes|12 years ago|reply
[+] [-] qznc|12 years ago|reply
https://bitcointalk.org/index.php?topic=103290.0
Edit: Also, p2p in general sucks, if you have no reliable internet, power outages, and low connectivity.
[+] [-] bayesianhorse|12 years ago|reply
Yes, extremely bad monetary policy is worse than having no monetary policy (as in the bitcoin economy). But the case of no monetary policy being better than even a moderately bad monetary policy is much harder to make.
I also don't see why so many people believe that there won't ever be an increase in the money supply from bitcoins. With a growing market capitalization and growing number of businesses dependend on Bitcoin, financial services and products around btc are becoming more common. Virtually no contracts, even in the bitcoin world, are instantaneous, thus investment banking will evolve and distort the idea of a new gold standard.
[+] [-] randomafrican|12 years ago|reply
Anyway.
Capital flight (especially unearned capital) has been a more common issue for much longer. I'm not sure how making that problem worse would help.
[+] [-] dabrowski|12 years ago|reply
Unless the hyperinflation lasted only about 3 weeks, then that statement is obviously wrong. 2^21 * 100 = 209,715,200
[+] [-] shawabawa3|12 years ago|reply
I think they got a bit confused - in Aug 2008 the inflation was up to 471,000,000,000%, which is roughly doubling every 25 hours
[+] [-] mercurialshark|12 years ago|reply
[+] [-] amalag|12 years ago|reply
[+] [-] zhaodaxiong|12 years ago|reply