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At a recent NYC Bitcoin meetup, a morally-pacifist, outspoken supporter of Bitcoin said that

"Bitcoin would prevent the deficit financing of wars"

...alluding to his perceived notion that a Bitcoin economy would prevent wars from being funded and started.

  • Is this a prevailing thought in the Bitcoin community?

  • What way of thinking makes this statement appear true?

  • What aspects of this quote has merit?

closed as primarily opinion-based by Stéphane Gimenez, dchapes, cdecker, Stephen Gornick, Murch Sep 11 '13 at 21:40

Many good questions generate some degree of opinion based on expert experience, but answers to this question will tend to be almost entirely based on opinions, rather than facts, references, or specific expertise. If this question can be reworded to fit the rules in the help center, please edit the question.

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There are two meanings to "deficit financing":

  1. Funding something by minting new currency.
  2. Funding something by borrowing.

Obviously, you can't change how fast you mint Bitcoins. Perhaps that's what he meant. It tends to not be very useful, though.

However, it's very possible to have debts denominated in Bitcoin, just as you can have debts denominated in silver or gold. In the Seven Year's War, which lasted from 1754 to 1763, France ran up quite a lot of debt, and they didn't need any of your fancy financial institutions to do it.

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Central banks buy (government-backed) debt and issue currency (paper or electronic money/credits) in exchange. The government then spends these newly issued paper or electronic credits and because the inflationary effect of the these being introduced isn't yet felt the government gets full purchasing power.

If the population refuses to use this currency in favor of an alternative to that currency, then the inflactionary effect of the issuance of the additional debt occurs sooner and there is a loss of purchasing power that can be proportionate to the amount of funds issued. For example, if issuing $1T a year causes a $1T loss in purchasing power for the government's spending then there is no net gain from issuing the $1T in the first place. It only works if the inflationary impact of is absorbed by those users of that currency.

That's why countries impose currency and capital controls to try to force its population to use the government currency instead of investing in certain liquid assets or in sending their wealth abroad.

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