Forbes contributor Nathan Lewis writes on monetary and tax policy issues and in this contribution he explains something he and Ron Paul knew a long time ago – that governments do not have a monopoly on currencies.
When Ron Paul invited me to testify in Congress in 2012 on the topic of “parallel currencies,” the idea was still perceived as rather eccentric. I pointed out that most people in the world were already using multiple currencies, usually a domestic junk fiat currency such as the Peruvian nuevo sol, and an international currency like the dollar or euro.
Since then, Bitcoin has awakened people worldwide to the fact that Ron Paul and I have known for years: that governments don’t have a monopoly on currency creation, and that you can have a great many non-government currencies if you want.
Bitcoin has already led to a phalanx of imitators: at last count, there were 83 “crypto-currencies” in the Bitcoin model. One of them is even called “RonPaulCoin”. Some people are already experimenting with grafting the Bitcoin platform to gold, producing an independent gold-based currency.
At the same time, larger institutions like Russia’s Sberbank are thinking of issuing their own competitive currencies. Britain’s Royal Mint plans to issue “gold-backed physical Bitcoins“.
Already, in the U.S., there have been many experiments with “community currencies.” At last count, there were sixteen in California alone, and another ten in Washington state. Mostly, these are low-quality dollar adjuncts, although there have been some experiments in making currencies based on “man-hours.”
There’s nothing new about “parallel currencies,” and actually nothing particularly special about Bitcoin. Any bank, like Russia’s Sberbank for example, could create its own currency, with all of the accompanying services such as bank deposit accounts, payment services, checks, credit cards, debit cards, electronic transfers via smartphone or whatever, and also physical banknotes and coins. It isn’t actually hard to do at all, and in fact banks in Hong Kong do this today, with independent bank-issued currencies based on the U.S. dollar.
After we have a little fun of playing with the idea of “parallel currencies,” eventually we will come to a more significant issue: what is the best kind of currency? Bitcoin itself is actually a junk currency, as I’ve described in the past. People then were so enamored of the seemingly-new (but actually rather mundane) idea of a “parallel currency” that was not issued by some government, that they were willing to overlook these problems.
Over time, people will eventually learn some other things that Ron Paul and I already know. The best currency is one based on gold; that is, whose value is reliably fixed to gold, in some unchanging ratio. This is the model the United States used for 182 years, from 1789 to 1971. For most of that time, until 1933, the dollar’s value was fixed at 23.2 troy grains of gold, or 1/20.67 of a troy ounce. After a devaluation in 1933, the dollar’s value was 1/35th of an ounce of gold, which continued until 1971.
The U.S. became a world superpower, the most successful country of the 19th and 20th centuries.