Yet as one of the world’s foremost bankers, Mr. Dimon is plainly aware that countries also create fiat currencies out of thin air. (In Latin, fiat means “let it be done.”) It has been more than four decades since Richard Nixon removed the American dollar from the gold standard.
And in any event, most of gold’s value doesn’t arise from its physical attributes, since it doesn’t have any magical ability to create usefulness or generate financial dividends despite its attractive shiny yellow hue. It’s instead because investors have believed in its value for thousands of years.
Of course, fiat currencies like the dollar have the backing of a sovereign nation. Digital currencies are obviously far more speculative, have been around for only a few years, and don’t have a government’s underlying support. But almost all currencies today are conjured up from nothing — the euro didn’t even exist 20 years ago — and their value is largely dependent on trust.
Naturally, most people have more trust in the “full faith and credit of the United States” than in an anonymous distributed group of miners and traders. But trust in digital currency is clearly building over time and is a self-reinforcing network. And one of the advantages of Bitcoin is that its total supply is fixed. A fiat currency, on the other hand, can be devalued by centralized monetary policy.
In his comments, Mr. Dimon cited the famed investor Howard Marks, who in a July memo to his clients referred to Bitcoin as an unfounded fad. But he seems to have missed Mr. Marks’s subsequent backflip in which, while remaining a skeptic, the hedge fund mogul wrote, “There’s absolutely no reason why Bitcoin — or anything else — can’t serve as a currency if enough people accept it as such.”
Mr. Dimon is also too modest about JPMorgan’s own achievements in this arena. His firm conjured up its own currency: Chase Ultimate Reward points, its credit card loyalty program. Millions of customers have accumulated billions of points, trusting in Chase’s promise that this currency can be converted into cash or used for travel and other delights. And they hope that Chase won’t unilaterally choose to devalue them, while living with the risk that, unlike their bank accounts, the Federal Deposit Insurance Corporation provides no insurance for this valuable currency.
JPMorgan is even working on its own blockchain project, Quorum, which is built on the publicly accessible Ethereum…