Robert Shiller: cryptocurrencies are doomed to failure

Cryptocurrencies may be yet another in a long line of failed attempts to establish new kinds of money, says Nobel-prize inner and professor of economics, Robert Shiller.

897-shiller
Robert Shiller,Nobel laureate and professor of economics at Yale University

Cryptocurrencies may be yet another in a long line of failed attempts to establish new kinds of money, Robert Shiller wrote on the Project Syndicate's website this week. Shiller, a Nobel prize winner who popularised the cyclically-adjusted price/earnings ratio as a measure of market valuation, and is famous for his warnings about both the US housing market and dotcom bubbles, notes that "attempts to reinvent money have a long history".

Examples include Josiah Warner's "Cincinnati Time Store", which opened in 1827. It sold merchandise for "labour notes", which were backed by "units of hours of work". It shut down just three years after it launched. A similar experiment launched in London a couple of years later by social reformer Robert Owen failed, too. During the Great Depression, economist John Pease Norton proposed a "dollar backed not by gold, but by electricity", which also failed.

"Each of these monetary innovations has been coupled with a unique technological story," Shiller notes. "More fundamentally, all are connected with a deep yearning for some kind of revolution in society." Cryptocurrencies are no different, he said. They were introduced by "entrepreneurial cosmopolitans" who "hold themselves above national governments, which are viewed as the drivers of a long train of inequality and war". The air of mystique around these innovations not to mention the fact that the means by which money itself derives its value is nebulous and faith-based also helps the ideas to gain traction, at least in the initial stages. For example, says Shiller, "practically no one, outside of computer science departments, can explain how cryptocurrencies work. That mystery creates an aura of exclusivity." Yet devotees beware. "None of this is new, and, as with past monetary innovations, a seemingly compelling story may not be enough."

Recommended

Bitcoin has just crashed hard – where will it go next?
Currencies

Bitcoin has just crashed hard – where will it go next?

The bitcoin price has taken a beating, down by 15% in one day. Dominic Frisby looks at what’s behind the crash, and where the cryptocurrency might go …
25 Sep 2019
Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
James Anderson: investors must pay "high multiples" for tech stocks
Tech stocks

James Anderson: investors must pay "high multiples" for tech stocks

Investors must be willing to pay “unreasonable prices” for high-tech growth stocks to take advantage of the huge potential returns that these companie…
14 Sep 2020
Daniel Loeb: fiery activist goes on a buying spree
People

Daniel Loeb: fiery activist goes on a buying spree

Daniel Loeb is known as a sharp-tongued investor who buys stakes in companies and then shakes them up. But the pandemic caught him flat-footed and he …
14 Sep 2020

Most Popular

Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020
Central banks want politicians to take charge – but what will they do?
US Economy

Central banks want politicians to take charge – but what will they do?

The US Federal Reserve has come to the end of the road in terms of what it can do to accelerate any recovery, says John Stepek. It's over to the polit…
17 Sep 2020