Can crypto-currencies save the economy?

Icelandic economy is going really bad, people do not trust the national bank nor their government to handle their money. So in a desperate attempt to resolve this terrible economy, an Icelandic man has created a bitcoin clone exclusively for Iceland and given out the equivalent of 400$ in auroracoins to every Icelander. But will this save the Icelandic economy, and are crypto-currencies like bitcoin the future in terms of money?

Sources:
http://www.theverge.com/2014/3/25/5...-claim-400-worth-of-auroracoin-cryptocurrency
http://www.theguardian.com/technology/2014/mar/25/bitcoin-goes-national-with-scotcoin-auroracoin

I can't say. On paper it could be a fantastic idea; but there's been security flaws, and scams and such that could result in it being a big joke at the end of the day. If they can eliminate those threats, why not? I can't see them doing it myself, but I'd still invest a small amount of money into crypto-currencies just in case. An amount I'm not afraid to lose, tbh.

Just from a basic economic viewpoint, ignoring the scamming issues (because paper currencies have the same problems):

- If the amount of currency is fixed, then it means it can't expand along with the economy, causing deflation: since there is more value in the economy but the same amount of coins, that means that every coin will be worth more and prices will drop, causing in turn debts to increase in value as "X coins" will be harder to adquire as you get paid less and less for your work. At that point, it's almost better to just tuck your money under your bed, as you'll be able to buy more with it in the future... which kills the credit market (because why risk not being repaid when you can win just by saving?) and causes the economy to die down. In other words, economies cannot grow in a substantial way unless cash is poured into the system along with it.

-If the amount of currency is tied to *value of x*, then it's the gold standard all over again- maybe it will lose value when you need the opposite, or stand still when you need to increase it. It's essentially giving the keys for something as vital as your currency to a random number generator.

-If the value of the currency is chosen by the market, it becomes stock trading, which is one of the main problems bitcoin is suffering from right now: its value fluctuates nonsensically and wildly, which makes it impossible to any sane person to keep track of the prices every day. How annoying would it be if you had to check the exchange market every morning just to figure out how much to ask for a kilo of oranges? Not to mention that it could drop any day so you'd rather spend all you've got that very day and not risk losing everything of a sudden.

-If the currency is only valid in your country, you are killing foreign trade because most people will ask you for some sort of international tradeable currency when selling you oil, food or whatever most countries need to buy on a daily basis. You'd end up being forced to resort to barter. We have tradeable currencies now because non-convertible ones were a huge failure as soon as countries left protectionism around the 19th and 20th centuries. It would be essentially going back 100/200 years.

-If the value (and amount) of the currency is chosen by a group of people, well, I'd rather choose a democratic government to handle it- they might be stupid but at least you can remove them if they fail too bad. The other option is choosing a self-appointed creator who might or might not have any clue of how economy works or care about what's better for him instead of the country- and unlike a selfish Government, this self-appointed creator has no "term limits", remember. Having a Government in charge is "the worst option except all the others" all over again.

Went said:

-If the currency is only valid in your country, you are killing foreign trade because most people will ask you for some sort of international tradeable currency when selling you oil, food or whatever most countries need to buy on a daily basis. You'd end up being forced to resort to barter. We have tradeable currencies now because non-convertible ones were a huge failure as soon as countries left protectionism around the 19th and 20th centuries. It would be essentially going back 100/200 years.

Click to expand...

The icelandic economy is bascially locked down already, with importing goods being close to impossible without a tremendous price increase. As for the currency only being valid in one country, most currencies are exclusive to one country. We Danes pay in Danish Kroner even when buying stuff over the internet, even when buying from other countries, because it gets exchanged to the other currency automatically.
The only real problem (which is in fact a problem big enough to make crypto-currencies not work at all) is the fluctuating value. If this currency gets treated as a stock, gets traded like a stock with no actual physical value associated to it, the entire cash system can easily break down. But maybe if you made an agreement with a major Icelandic company to sell physical wares in, say, Auroracoin, the value of the coin would be directly associated with a physical value of an object. That might stabilize the currency, leading others to adopt it as well, following the lead of this major company. That is in my optics the ideal situation for the goal of full adoption of a new monetary system.

Blu·Ray said:

The icelandic economy is bascially locked down already, with importing goods being close to impossible without a tremendous price increase. As for the currency only being valid in one country, most currencies are exclusive to one country. We Danes pay in Danish Kroner even when buying stuff over the internet, even when buying from other countries, because it gets exchanged to the other currency automatically.

Click to expand...

That's the concept of a tradeable or convertible currency- you can pay with Danish Kroner even when you are paying dollars because the bank who does the actual transaction will be able to sell those Kroner to somebody who has dollars in exchange for them. Here, in Argentina, where there are a million restrictions to foreign trade because nobody wants useless Argentinian pesos, the Government has limited the amount of foreign currency you can buy every year- because nobody wants to exchange your pesos for dollars, so the Government has to do it with their own savings, which keep getting slimmer day after day. You can only buy two things on the internet per year in any other currency than pesos! That's because they need every last greenback to buy oil.

In 2012, their exports were worth $5.5bn and their imports were worth $5.2bn[1], so they even got a profit. But the idea is, if your currency is locked, you can only import the equivalent of your exports, which is a risk, specially for other countries with a bigger need of costly products.

Blu·Ray said:

The only real problem (which is in fact a problem big enough to make crypto-currencies not work at all) is the fluctuating value. If this currency gets treated as a stock, gets traded like a stock with no actual physical value associated to it, the entire cash system can easily break down. But maybe if you made an agreement with a major Icelandic company to sell physical wares in, say, Auroracoin, the value of the coin would be directly associated with a physical value of an object. That might stabilize the currency, leading others to adopt it as well, following the lead of this major company. That is in my optics the ideal situation for the goal of full adoption of a new monetary system.

Click to expand...

-If the amount of currency is tied to *value of x*, then it's the gold standard all over again- maybe it will lose value when you need the opposite, or stand still when you need to increase it. It's essentially giving the keys for something as vital as your currency to a random number generator.

Click to expand...

In that case, you'd be giving the keys of your economy to that company. I'd certainly trust one single company with the currency of an entire country. I'm sure that company won't use it to their advantage, and thankfully we can elect new leaders for that company after 4 years if they mismanage the currency- oh wait.

I see this becoming really problematic... as with most political things, you never know who to trust, and you can't even do business without knowing that the others want nothing but profit.
Currency and economy is something deeply incarnated, and as much as I hope for an initiative like this to work, I know realize that it is tough to imagine anyone or anything changing that dinosaur of a business.