LONDON -- The pioneering virtual currency bitcoin could have trouble sticking around for the long haul given its lack of intrinsic value and practical applications other than as a means of payment, according to Nobel Prize-winning economist Robert Shiller.
Despite his less-than-enthusiastic prediction, he recognizes the fast-growing cryptocurrency market and calls for government intervention to protect investors. Shiller spoke to The Nikkei at the World Economic Forum in January and answered additional questions by email.
The economics professor at Yale University views the blockchain technology that underpins virtual currencies as an important innovation. The technology has given rise to such services as cheap and fast money transfers.
The problem, Shiller said, is with bitcoin itself. "Gold has maintained value for thousands of years" because it is "inherently and uniquely scarce and beautiful and useful for certain purposes," he explained. But "bitcoin is none of these," making its value very difficult to determine, Shiller said. "While Bitcoin production is limited to 21 million coins, there is nothing to stop new cryptocurrencies" from emerging, he noted.
"I have said that bitcoin might possibly last a hundred years, but is unlikely to do so," he predicted.
All the same, the notion of an internet-based currency unbound by traditional power structures holds a strong appeal, particularly for the young, at a time of rampant mistrust in the government and authority of all kinds, according to Shiller. He sees new, improved cryptocurrencies continuing to emerge in the future.
With cryptocurrency futures now available for trading, investors are widening their reach. This calls for the government to institute investor protections, Shiller argued, warning of a catastrophic misstep in an unfettered market.
In particular, Shiller believes the tokens sold in so-called initial coin offerings should be regulated like securities. And "in the spirit of past regulation, authorities should pursue illegal money laundering and deceptive practices that involve cryptocurrencies," he said.
On the resilience of the current financial market, Shiller warned that central banks and monetary authorities around the world would not be able to repeat the coordinated response taken in 2009 if the next crash hits. The U.S. government, in particular, has already taken on a good deal of debt, and the public is skeptical of policies that would bail out banks using taxpayer funds, he explained.
For now, "monetary authorities should express their opinions about the excited atmosphere in the speculative markets, urging calm," Shiller said, adding that "raising interest rates is going to be needed too."
"But it may not be possible for authorities to prevent the next recession," he said. "They occur with some regularity."
Shiller is wary of U.S. President Donald Trump's threats of a trade war, which he sees as politically effective but detrimental to the people's economic interests.
In his view, what is more important is for governments to remedy the excesses of capitalism. Giving examples such as GDP-linked bonds, which he now studies with the Bank of England, Shiller stressed that nations must work toward a system where the benefit of economic growth are distributed among middle class individuals.