All of which brings us to the “crazy” idea of backing fiat currencies with cryptocurrencies, an idea I first floated back in 2013, long before the current crypto-craze emerged.
Exhibit One: here’s your typical central bank, creating trillions of units of currency every year, backed by nothing but trust in the authority of the government, created at the whim of a handful of people in a room and distributed to their cronies, or at the behest of their cronies.
And this is a “trustworthy” currency?
Exhibit Two: central banks can’t become insolvent, we’re told, because they can create as much currency as they want, whenever they want. And this is a “trustworthy” currency?
Exhibit three: and here’s what happens when trust in the currency is lost due to excessive currency issuance: the currency goes from 10 to the US dollar to 5,000 to $1 and then to 95,000 to $1, on its way to 2,000,000 to $1:
Yes, this was once a “trustworthy” currency.
While many people expect China to issue a gold-backed currency some day, they overlook the inconvenient reality that China is creating far more fiat currency than it is adding in gold reserves. They also overlook that gold-backed means nothing if the currency isn’t convertible into gold.
If it isn’t convertible, it isn’t gold-backed. Claiming there’s gold somewhere in a vault doesn’t make a currency gold-backed, as the central bank can devalue the currency it issues at will. Gold-backed means the currency is pegged at X units of currency to 1 unit of gold, and X units of currency can be exchanged for 1 unit of gold.
All of which brings us to the “crazy” idea of backing fiat currencies with cryptocurrencies, an idea I first floated back in 2013, long before the current crypto-craze emerged: Could Bitcoin (or equivalent) Become a Global Reserve Currency? (November 7, 2013)
Since there is no real-world commodity backing the digital currency, its value must be based on scarcity and its ubiquity as money. The two ideas are self-reinforcing: there must be demand for the digital money to create scarcity, and the source of demand is the digital currency’s acceptance as money that can be used to buy commodities, goods, services and (the ultimate test) gold.
Speaking of gold, correspondent Liberty Philosopher recently posed a scenario that was new to me: if gold continues losing value, could central banks dump their gold in favor of cryptocurrencies?
Yes, I realize this is anathema to those who anticipate a gold-backed currency becoming the dominant form of centrally issued currency, but the idea of governments that have debauched their currencies building reserves of decentralized and limited-in-issuance cryptocurrencies may not be as farfetched as you might imagine.
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Here is Liberty Philosopher’s commentary:
My understanding is that gold is kind of a reserve asset held by governments that provides the ultimate assurance that they are able to pay their debts. If the value of the assets they hold, which are a guarantee of their ability to pay, begins to erode, and the erosion in value is not a temporary or passing phenomenon, but a continuous and long-term trend, this would imply that the ability of governments to ultimately pay their debts would be eroding. If the value of gold begins to decline, governments who have gold reserves, but whose ability to pay their debts may be somewhat in question, would come under pressure to fortify their reserves as proof that they remained able to pay their debts.
If the price of gold were to continue to decline, my thought is that governments would be under pressure to sell the reserve asset that was declining in value, because the continuing decline in value would call into question their ability to repay their debts. They couldn’t just sit there and allow their reserves to decline in value year after year. They would have to act. If the need for having some kind of “hard” currency reserve remains (creditors may not want to accept newly printed bank notes in lieu of “hard” reserves), and they are forced to begin selling their gold reserves, what other hard reserve asset could they obtain or purchase? I think they could become purchasers of the most valuable cryptocurrencies as a replacement for their gold reserves.
The ideal reserve gains in purchasing power over time. If Venezuela had purchased bitcoin in size when it was $100, or even $1,000 in January 2017, its own currency wouldn’t be heading to near-zero quite so quickly.
In my book A Radically Beneficial World, I proposed that nations which had debauched their centrally issued fiat currency could acquire the labor-backed currency I propose as reserves.
The acquisition of decentralized cryptocurrencies as reserves may sound crazy now, but as central banks destroy the purchasing power of their fiat currencies, all sorts of ideas that seem crazy now will start looking practical once the death spiral of the current unstable monetary regime begins.
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You can read more from Charles Hugh Smith at his blog Of Two Minds, where this article first appeared.
Venezuela graph reminds me of Zimbabwe twenty years ago, when Wessel Rautenbach was charged with fraud, and Uncle Bob’s (Robert Mugabe) major source of income disappeared
was followed later in the year by farm invasions by “military veterans” most of whom, at younger than eighteen weren’t even born at the time of the elections (not the last free elections in Zimbabwe, if you remember that Bishop Ndabaningi Sithole won the first elections, but the rest of the world refused to accept a moderate African to come to power and so they did a “recount” overseen by everyone’s favourite organisation, the United Nations
how things change, and stay the same?
and if you thought the Prepper in your family was out of line – the Zimbabweans did hold TOILET PAPER in greater esteem than the Zim dollar
What people need to understand when studying these graphs……..the people who produce them also control the money supply.
Venezuela has one of, if not the biggest Oil reserve in the world, but is under Sanctions from America because Maduro wont bow down to American Imperialism.
America are determined to see Socialism doesn’t work, just look at what they did to Libya!
Under Gaddafi the people had; Free Education, Free Health, Free Electric and Water, Free Transport, Free Public Housing, he also offered Interest Free Loans to start a business.
Look how they attack Cuba and rain Sanctions on them too, as well as Venezuela, they now start attacking N Korea. All of these sanctions and threats are backed up with lies and propaganda!
http://www.globalresearch.ca/shock-horror-cia-director-admits-us-trying-to-overthrow-venezuelan-government/5601205
In 2008 the central banks froze lending and began to purchase “assets” with their 700 billion in bailout credit. Today they are beginning to sell their “assets” and raise interest rates. The Global Dept Facility, under the Board of Governors of the IMF is forcing central banks into insolvency. They are scrambling for revenue.
https://www.youtube.com/user/KarenHudes
Exactly correct. However, I would have gone further and not backed currency by the slavery of the people, but by the total amount of capacity of people plus nature, and that means leaving a lot of nature to its own. Gold backing won’t happen, or rather should not happen anyway. Extracting the stuff is horrible and they’re using little African kids to do it. Is any of this convenient/relevant? Not to the men who run the world. I’ve had this idea forever. I am glad to see it getting somewhere but we don’t need crypto to do it. Crypto will just be another means of convertible script, one form of the new PUBLIC, people- and nature-backed currency. We are humans, for F’s sake, we don’t need to back anything. That was another Rothschild ruse. Now I need to go and capitalize on this and not let another man fall short yet again on the idea.
Although I’m behind the idea, I’m not keen on a ‘cashless’ society, we need to have a modicum of control, which we wont if we go cashless.
Yes, gold is being mined, but the technology we have now would see these children replaced. They are kept now because no-one complains and they serve their agenda; 1. They are cheaper than the new technology. 2. They are plentiful and 3. work towards their depopulation agenda.
They say they are only going to ‘mine’ 21 million bitcoins, but what if, once all are on board, they mine more? After-all they aren’t renowned for keeping their word. This is why I will fight against ‘virtual currency & a cashless system’!