Bitcoin - New Currency?

A new on-line currency, the bitcoin, has been created and is in circulation. Basically, it is currency created through a computer algorithm that can be used for on-line purchases and is free from any national government. There is a lot of talk that it will become the currency of drug dealers and criminals. Newsweek has a short article on it here and the Economist blog has a larger post on it here.

I am not sure what will happen to this currency. I suspect not much. The amount to be put in to circulation will be small (21 million coins, even at a price of $18 per coin, is not much of a base for a currency). However, the bigger issue is whether this currency can offer anything (except hiding illegal activity) that most people would want in a currency that is not already available. I know that Internet people will say that this is a new form of currency - however, the idea of private entities creating their own currency is not a new idea. More importantly, the fixed amount of bitcoins will likely result in hoarding, hence raising its value - but leading to a form of deflation. Or, it could simply be too difficult to use and be utterly worthless. Either way, it will be interesting - although not very useful.

The Civil War and the Great Monetary Experiment

The blog Macro and Other Musings has a good post on the three monetary systems the United States used during the Civil War (Green bank fiat currency in the North, State backed fiat currency in the South and Gold back currency in California). The comparisons between the systems and effects on the war are interesting. Because, the value of Confederate money depended on the war situation, it value fluctuated during the war. The graph below show this: