Bitcoins and free banking

Good piece at the Ümlaut on the emergence of Bitcoin and how the lessons of free banking in America and Scotland may apply. Clearly  the beneficiaries of seignorage are unhappy with the emergence of Bitcoin: witness the latest report that the US CFTC (the commodities / derivatives regulator) is looking into Bitcoin. Fundamentally seignorage occurs when the value of a currency is greater than the production cost. In the case of paper or digital currencies (like the US Dollar), the marginal cost of production is very close to zero. Thus there is significant seignorage to be earned. The emergence of an alternate currency is a threat to this free profit mechanism.

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