Break­ing the mo­nop­oly on money

The fed­eral gov­ern­ment shouldn’t block dig­i­tal funds

The Washington Times Daily - - OPINION - By Richard W. Rahn Richard W. Rahn is chair­man of Im­prob­a­ble Suc­cess Pro­duc­tions and on the board of the Amer­i­can Coun­cil for Cap­i­tal For­ma­tion.

If mankind can fig­ure out how to give ev­ery­one in­stant com­mu­ni­ca­tion and all the world’s knowl­edge via the smart phone, why are we not smart enough to fig­ure out equally con­ve­nient, quick, low-cost and se­cure ways of pay­ing for goods and ser­vices to ev­ery­one on the planet? Ac­tu­ally, we are. At the mo­ment, the Swedes and Danes are en­gag­ing in a con­certed ef­fort to phase out cash — that is, pa­per cur­rency and coin. The Mon­e­tary Author­ity of Sin­ga­pore has just an­nounced that by work­ing with a num­ber of banks and blockchain tech firms, they have just com­pleted the first phase of “to­k­eniz­ing” a Sin­ga­porean dol­lar through an Ethereum blockchain that is largely anony­mous but can be used to trans­fer value in­stan­ta­neously like pa­per cur­rency (un­like checks, credit and debit cards, and stan­dard elec­tronic trans­fers).

The idea of money has been around for sev­eral thou­sand years, along with pre­cious me­tal coins to serve as money. The ques­tion has re­mained as to whether gov­ern­ments, pri­vate par­ties or both should cre­ate money. When the weight of a gold or sil­ver coin de­ter­mined its value, it mat­tered lit­tle to the user who struck the coin. Af­ter the in­ven­tion of pa­per money by the Chi­nese, “over-is­suance” (pro­duc­ing more pa­per value than the real value of the me­tal in the vault) be­came much eas­ier than shav­ing the coin — the man­i­fes­ta­tion of which we know as in­fla­tion. Zim­babwe holds the record for pa­per in­fla­tion by hav­ing pro­duced a 100 tril­lion Zim­babwe dol­lar note.

The move to elec­tronic money and money trans­fers (as con­trasted with the phys­i­cal move­ment of checks and other pa­per monies) has made it even eas­ier to cre­ate in­fi­nite amounts of money with lit­tle or no back­ing in the form of real as­sets. Dig­i­tal money or cryp­tocur­rency refers to non-phys­i­cal money not cre­ated by a cen­tral bank.

Gov­ern­ments and banks do not like pa­per cur­ren­cies or pa­per checks. They are costly to handle and move about. They are eas­ily stolen and it is very hard to keep track of own­er­ship (which is big prob­lem for le­git­i­mate law en­force­ment, and also for regimes that do not re­spect fi­nan­cial pri­vacy and wish to spy on their cit­i­zens). Money is also dirty — in that it can trans­mit dis­ease (cov­ered with germs go­ing from one per­son’s dirty pocket to an­other’s). Pa­per money is also costly to pro­duce — with more and more anti-coun­ter­feit fea­tures be­ing re­quired — mi­cro-in­for­ma­tion threads and wa­ter­marks in the “pa­per.”

Get­ting rid of pa­per money sounds like a great idea, but many peo­ple can­not ob­tain debit or credit cards (in part be­cause of anti-money laun­der­ing reg­u­la­tions), and peo­ple like the anonymity of pa­per money — for good and bad rea­sons. There are times most peo­ple don’t want oth­ers, in­clud­ing gov­ern­ment busy­bod­ies, to know how they spend their money.

At the same time that the gov­ern­ment of Sin­ga­pore is try­ing to get ahead of (or at least team up with) the in­no­va­tors around the world — like the founders of Bit­coin or Ethereum, who are com­pet­ing to come up with su­pe­rior money — there are those politi­cians in the United States and else­where try­ing to thwart progress. Sen. Charles Grass­ley, Iowa Re­pub­li­can, along with Sens. Dianne Fe­in­stein, Cal­i­for­nia Demo­crat, John Cornyn. Texas Re­pub­li­can, and Shel­don White­house, Rhode Is­land Demo­crat, have in­tro­duced a bill to stop dig­i­tal cur­ren­cies from cross­ing the U.S. bor­der with­out be­ing re­ported (prov­ing that nei­ther po­lit­i­cal party has a mo­nop­oly on those who can­not think be­yond Stage I). Their goal is to stop the vague crime of money laun­der­ing, tax eva­sion and, of course, ter­ror­ist fi­nance. Are gov­ern­ment of­fi­cials go­ing to elec­tron­i­cally in­trude into all of our smart phones and elec­tronic de­vices look­ing for atoms that might rep­re­sent money, when they can’t find thou­sands of tons of drugs cross­ing the bor­der?

Some of the smartest peo­ple in the world are de­vel­op­ing cryp­tocur­ren­cies, pre­cisely to get around gov­ern­ment mo­nop­oly money with all of its in­ef­fi­cien­cies, in­tru­sive­ness and de­struc­tive­ness. Black or shadow mar­kets arise in re­sponse to gov­ern­ment reg­u­la­tions and con­trols and, in par­tic­u­lar, those that are eco­nom­i­cally dam­ag­ing and with lit­tle pub­lic sup­port. When the world was on the gold stan­dard, there was no a black mar­ket in money. The higher the rate of in­fla­tion, the greater the reg­u­la­tion and the cost of money trans­fer­ence, the big­ger the black mar­ket. Venezuela to­day is Ex­hibit I.

There is no rea­son gov­ern­ments should mo­nop­o­lize the is­suance of money (gold, pa­per cur­rency or a cryp­tocur­rency) any more than they should mo­nop­o­lize the pro­duc­tion of pa­per clips. The Fed­eral Re­serve was sup­posed to pro­tect the value of the cur­rency — which is now worth a lit­tle more than 4 per­cent of what it was a cen­tury ago when the Fed­eral Re­serve was cre­ated. The great shame is that when gov­ern­ments steal from ev­ery­one, no one goes to jail. The good news is that real, pri­vately is­sued, global cur­rency com­pe­ti­tion is alive and well, whether gov­ern­ments like it or not.


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