National Currencies’ Tragic Race to the Bottom
Money—the magical power it has over people is almost universal. But whether we earn it, spend it, or save it, we hardly ever think about the following questions: What is money, why does it exist, and what will money look like in the future? Why should we? Our money works. Day in, day out we use it without much effort. So what’s the problem?
Well, let me explain. As August Friedrich von Hayek pointed out, we humans constantly use things we don’t know anything about. It’s this very fact that makes us such a successful species. It’s no different with money. That we don’t have to think about money but can still use it successfully is a big win and a witness to how well our market and knowledge society functions.
In the course of the Great Recession of 2008 and the corona crisis this year, questions about the role of money seem to become asked more frequently again. Is money undergoing great change? As the history of money shows, money has never been a dormant, unchangeable thing. Money and its nature have always been in a state of flux. Therefore, even with money, what we take for granted today may no longer be valid tomorrow. It is simply not a problem until it is a problem.
Money at a Crossroads
The assumption that the essence of money has never been more in a state of flux than ever before could be due to the following facts: technological change, the Faustian hyperextension of our financial order, old insights from monetary theory, or how entrepreneurial discovery processes are shaking up the current dogmas of money. Precisely because uncertainty about the future of money seems to be felt by an increasing number within the general public, it is worth taking an objective and sober look at the current processes, trends, and dynamics.
Today we associate money primarily with national currencies: dollar, euro or Swiss franc. These national currencies are issued by the respective state, or more precisely by its constitutionally authorized national or central bank. These monies are also commonly referred to as fiat currencies. The term “fiat” is of Latin origin, meaning “it will be,” and is intended to refer to the fact that national currencies were created from nothing (“ex nihilo,” also Latin) and would have no commodity backing.
The extent to which this description is correct is the subject of heated debate. According to Chartalists, money would get its value from the state’s monopoly on money and taxes. In their view, the state is the origin
Article from Mises Wire