Economist Ken Rogoff on bitcoin, government regulation, and anonymity's role in the the development of crytpocurrencies.
Business Insider's Sara Silverstein spoke with Ken Rogoff, former IMF chief economist and author of "The Curse of Cash," at the World Economic Forum about the use of cryptocurrencies and the possible regulatory challenges they will face. Following is a transcript of the interview.
Silverstein: Two years ago, you wrote a book "The Curse of Cash." And a lot of the premise of that is getting rid of big bills in large part to reduce the amount of tax evasion and criminal activity and a lot of people might think the solution then would be something like a cryptocurrency. But you actually addresses this in your book two years ago. Can you explain why you don't think bitcoin is the solution to the hundred dollar bill problem?
Rogoff: No, it's certainly bitcoin — it is a solution if you're wanting to launder money or tax evasion. I think the government will eventually have to regulate it severely and I think someday will issue its own digital currency.
We have to remember the private sector invented standardized coinage, and then the government eventually regulated it, took it over — different times different places. Same thing with paper currency — private-sector invented it, government regulate it, took it over. What makes you think it will be different? And that bitcoin evangelist say, "no, no, no; this is Libertarian. They will not touch us." I'm sorry when it comes to the monetary system, the government makes the rules. You cannot win the game. If they're not winning, they will change the rules. That's what will happen here.
Silverstein: And is that what you think that ten years from now looks like — is that cryptocurrency will exist, but that the government will have taken over?
Rogoff: Well, I think the government will have a much bigger hand in regulating. We will see a new generation that's used for transactions, but not anonymous transactions. That's where I think the government really has to step in. There's some great technologies here, but I think it's a little bit like with the internet, which they say, but it's a little bit like internet 1.0. And we will see at some point a cryptocurrency 2.0, which is not crypto, it's not anonymous. But substitutes for debit cards, credit cards, cash, makes electronic transfers more secure. I think there are a lot of ideas out there. They're also a lot of people who are rushing to cash in on the craze and just trying to make money. We see it here at Davos. They've quite a presence.
Silverstein: And this might be a hard question to answer, because it's hard to understand exactly where all the value in bitcoin comes from and it's already come down a lot. But how much of the value do you think will be lost if it loses anonymity and it loses its libertarianism?
Silverstein: So not the whole space, but bitcoin in particular?
Rogoff: Yeah like bitcoin in particular, I think it's much more likely to be worth $100 than $100,000B ten years from now. I don't think it's going to zero, because they'll be places like North Korea, maybe even Russia that, you know, "you have all sorts of financial sanctions on us. We're not benefiting from the system. We're going to let people launder money." So I don't think you're going to wipe it out.B I think you will have governments use it. But in the mainstream government, it's not going to be legal in banks; it's not going to be legal in retail transactions unless it's not anonymousB. And bitcoin, you know, it's funny just the energy that it uses, but it's the anonymity that's really the problem.