The End of Bitcoin?: The government doesn't like competition

Governments don't like competition.  Back in the late 1970s the federal government refused to let American Express pay interest on its Traveler's checks because of a fear that people would want to hold them instead of US currency.  That wasn't an unreasonable fear given that inflation got up to an annual rate of 14 percent during the last quarter of 1980.  Currency competition also means that the government can't do what it wants with the currency.  If the government starts printing up a lot of money, people might want to hold an alternative currency that won't be falling in value.  A competing currency also means the government will lose what is called Seigniorage, the difference between what the cost of making the currency and the face value of it.  For cash, it might only be a couple of pennies, but the government can get $20 for a $20 dollar bill.  From the American Banker:

The U.S. government needs more time to assess the Bitcoin "phenomenon" to ensure the virtual currency isn't used for unlawful purposes, Treasury Secretary Jacob J. Lew said. 

Lew, who leads the Obama administration's efforts to fighting illicit finance globally, said he discussed Bitcoin with JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon and shares a "certain incredulity" about it. 

"We have to make sure it does not become an avenue to funding illegal activities or to funding activities that have malign purposes like terrorist activities," Lew said in an interview with CNBC today at the World Economic Forum in Davos, Switzerland. "It is an anonymous form of transaction and it offers places for people to hide." . . .