Bitcoin vs. the Printing Press

Start with the simplest experiment. Take one economy and run it twice, once with central-bank money and once with a fixed supply. Nothing else changes. Under fiat, prices rise about 3% a year and roughly double over 20 years. Under bitcoin they fall about 3.6% a year and end at less than half their starting level. Employers respond by cutting money wages, and a worker who keeps a job ends up with slightly more purchasing power than under fiat. But fewer people keep their jobs, and the typical household falls steadily behind.

What would it take to turn deflation into a slump?

Bitcoin’s jobs penalty in the default app is real but moderate. To get a genuine deflationary slump, with unemployment in the teens, you have to change the assumptions about how people behave. We tried three, one at a time and then together. Making debtors three times as sensitive to deflation barely moved average unemployment. Having people expect deflation to continue, instead of anchoring on the regime’s trend, barely moved it either. Very sticky wages (pay closes only 5% of the gap each month instead of 10%) is what does it: unemployment averages 8.5% and peaks at 13.3%. Going the other way, if wages reset at once, unemployment drops to 6.1%.

Every run opens with households as they are today: about two-thirds own their homes, and 62% of those owners carry a mortgage, so about 40% of all households start out owing a fixed sum of money. Under fiat, inflation slowly shrinks that debt. Under bitcoin, falling prices and wages make it heavier every year. Take the inherited mortgages away and the picture changes. Both worlds get richer, but bitcoin gains far more by the end of the run.

In the current simulator, every firm’s pay drifts toward an agreed wage set by the price level, productivity and how tight the job market is. The negotiation is symmetric. When prices rise, workers win raises. When prices fall, employers win pay cuts, at the same speed. A firm whose sales drop can also shed staff, but at most 5% of its workforce a month. So in a deflation, firms have two levers: cut pay or cut jobs. How fast pay can be renegotiated decides which one carries the load.

The simulator’s fiat central bank now prints when a crisis hits. When unemployment rises more than two points above its natural rate, it speeds up money growth a few months later. It also can’t freeze the money supply: some growth always happens. To test this, we made the world stormy. A new boom-and-bust shock starts as soon as the last one ends, and each is three times the default size. Then we compared four rulebooks: fiat with crisis printing switched off, fiat with it on (the default), a full “printing press” (maximum crisis stimulus, a central bank that buys half of new government debt, and deficit spending), and bitcoin.

How fiat and bitcoin households fare

A fiat household is far more likely to keep its job through the busts. Its cash savings, though, lose 5–7% of their value a year. By year 20 its paycheck buys 5–11% less than a bitcoin paycheck, and under the printing press real pay grows just 4% in 20 years (bitcoin: 18%). The printing press also brings more bank failures (8.5 by year 20, compared with 1 for ordinary fiat). A bitcoin household that keeps its job sees its pay buy a little more each year, and its cash gains value. But at the worst point of a bust about one worker in six is out of work, and wealth piles up at the top. The richest fifth hold 70% of household wealth, compared with 55–56% under fiat, and the poorest fifth hold 2.0% (fiat: 3.3–3.9%).

The most realistic future may not be “all bitcoin” or “all fiat”. It may be a hybrid, where people and firms hold whichever money they trust. We asked how far the current app can take that question. It has three pieces. They’re worth seeing, but none of them is yet an economy where each household chooses its own money.

Piece 1: the “hybrid” regime is bitcoin with a safety net

Choose hybrid and the economy runs on fixed-supply money, like bitcoin, except that the central bank stands by as a lender of last resort. If a bank’s equity goes negative, the central bank injects just enough reserves to keep it alive. That rescue is the only new money ever created. The result: zero bank failures in every run (bitcoin: 5 by year 20), and a typical household that ends year 20 about 22% better off than under plain bitcoin, though still behind fiat. Unemployment is no different from bitcoin’s.

Piece 2: a currency-choice scoreboard

Turn on Money choice speed and the app tracks the shares of fiat, bitcoin, stablecoins and a central-bank digital currency. Each month they drift toward the mix favoured by legal-tender pull, trust, payment friction and real return. At the default trust level, bitcoin’s share climbs from 0.4% to 16% within about two years and its price rises twelvefold. At high trust (1.5) it reaches 36%, level with fiat, and its price hits the model’s 20× ceiling by year 8. The catch: nothing else in the economy changes, not even by a cent. In all 10 runs every series except the money shares and the bitcoin price is identical to the run with choice switched off. For now the shares are a scoreboard, not a choice anyone acts on.

Piece 3: a five-year window when both monies circulate

The closest thing to two currencies side by side is the gradual transition. For five years, a slice of every deposit and every loan is converted into bitcoin each month, and shops accept either balance. Then the economy moves fully onto bitcoin. Here is how that compares with an overnight switch at month 60 and with staying on fiat. During the window itself, nothing much happens. Once bitcoin rules take over, unemployment climbs to 13–14% within five years. Averaged over years 2–20, the gradual route ends slightly worse than the overnight switch: unemployment averages 10.3% vs 9.2%, higher in 9 of 10 runs, and bank failures reach 11 vs 7.