|
The Role of Currency in the Digital Age
By:
Tom Westbrook
The Role of Currency in the Digital Age By Tom Westbrook  The role of currency has changed over the years, but is typically defined as a “medium of exchange.” Currencies have evolved over time out of a necessity as a result of commerce. When people produced items that were bulky or may have had a limited shelf life, they would trade them for things that were easy to carry and kept well or remained durable. These items could then be traded at a later date for items that were actually needed. Gold and silver typically worked well because they were valuable and durable. Over time money changers learned techniques to cheat and exploit people out of the value of their currency. Eventually governments learned that they could control populations by controlling the currency that the people found themselves dependent on. Today, by far, the majority of currencies are issued by government fiat. This means that the government decrees that the currency has value and it is so--despite the fact that the currency holds no intrinsic value. Currency as a pyramid scheme Imagine a world where debtors are rewarded and savers are penalized. Imagine a society where young people live a life of excess on borrowed money (and are turned into debt slaves) while seniors are required to live on less and less with each passing year. If you can imagine such a world, then you are most likely imagining a world that is very similar to the one in which we currently live. In this world, the purchasing power of the saver is reduced as a result of the expansion of the debt bubble while the debt of the debtor shrinks. Eventually the saver gets tired of being penalized for saving, and follows in line with the debtor. The result is a direct wealth transfer from the savers to the debtors. The ponzi scheme comes to an end when there are no more savers left to exploit. It has been said that if you subsidize something, you will get more of it. The result is that we have a country that was once a wealthy nation that now is a nation of debtors.  Most of us understand how the credit system works. If you pay your bills on time, then you will have good credit, and you can then get a good rate on your loans. It seems fair enough, right? But in fact, having good credit moves you up one rung on the pyramid. Once there, you will have an advantage over those with bad credit and begin to collect the proceeds from inflation. This results with the ability to purchase products on credit while the dollar still has value and then repay the debt on those items with a dollar that has been diminished in value. At the top of the pyramid of course, is the Federal Reserve who creates debt out of nothing and charges everyone else interest. It then sells this debt to the banks who then create more debt out of nothing and charge interest. These banks then pass this along to corporations and consumer debtors. Everyone along the way receives a kickback via inflation as long as the debt bubble is expanding. Of course once the debt bubble bursts, then the jig is up and the ponzi scheme comes to an end. The tax payers will then bail out the to-big-to-fails and the people and small businesses will go bankrupt. Those who understand how the process works, get in early and get out before the collapse. They then come back and buy everything up on the cheap. Central Banking - The End of Capitalism
Of course the ideal place to be in the pyramid is to be at, or near, the top where you can create money out of nothing and charge everyone else interest. But if you are not privileged enough to be there, then the next best place to be is to have a best friend who creates debt out of nothing who will give it to you for next to nothing.
Imagine that you are a business owner, and you have a competitor across town. There's nothing wrong with a little bit of friendly competition, after all you are confident that you have a better quality product and a lower price. Now imagine that your competitor has a very good relationship with his banker who just happens to create money out of nothing. Now imagine that this banker gives large amounts of this newly created debt to your competitor at a very low interest rate. Now you can image that your competitor will open up stores all around you to encroach into your market segment. Now you can also imagine that your competitor will reduce his prices and sell them at a loss because he doesn't really need to make money-- it's going to be a long time until he needs to pay back his cheap debt and he can always continue borrowing more. Meanwhile you are no longer able to compete and are forced to go out of business. Of course, once the well connected competitor has a monopoly on the product in your area, quality will go down and prices will go up!
If you have ever wondered why there are so few mom-and-pop businesses left in your neighborhood and so many franchises everywhere, NOW you know the answer. When there are only a few businesses left that are being held by a few monopolistic national corporations, this is not capitalism but crony capitalism or quasi communism. It certainly isn't traditional capitalism that this country was founded on. You can have capitalism or you can have central banking, but you CANNOT have BOTH.
The Digital Currency R3volution There is good news, though. It's that the digital currency r3volution has already begun and is well underway. The growth of online sales has grown exponentially since the year 2000 and is currently growing at an annual rate of 3.4%. The trend is moving from credit based transactions (down to 43% in 2012 from 59% in 2007) to debit based transactions (up to 30% in 2012 from 26% in 2007) as well as other payment methods (up to 30% in 2012 from 15% in 2007). There are different types of digital currencies. There are fiat currencies based on a dollar credit like Paypal; there are currencies based on a dollar debit like Dwolla; and there are currencies based on an independent fiat currency like Bitcoin. Bitcoin is a revolutionary idea because the rules of fiat money creation is built into the logic of the peer-to-peer computer software therefore limiting the creation of money and creating a level playing field with no central banker. The risks are that it is still a fiat currency and subject to market speculation and manipulation. Superior to Bitcoin, in my opinion, are digital precious metal currencies. With these, typically the precious metal is held in an offshore vault and a balance can be held in the precious metal. This eliminates the devaluation of your wealth while enabling trade. Examples are: GoldMoney, CentreGold, iGolder, e-gold, LibertyReserve and many more and growing. The downside with this is that the precious metal in the vault could always be stolen by government entities--as was the case with the LibertyDollar. It's important that the vault that holds your precious metal is in a stable and trustworthy country. For a full list of digital gold currencies click here.  Another indispensable part of the digital currency is the currency exchange. Currency exchanges enable the conversion from one type of currency to another. This allows for currency competition and flexibility. The number of currency exchanges are growing rapidly. For a full list of currency exchanges click here. The Goods Are The Currency A digital currency typically is thought of as computer digits representing a physical currency. A digital FRN, for example, is thought of as representing a paper FRN. A digital gold currency would represent a weight of an amount of gold. But if gold is a commodity, then why couldn't a digit represent other types of commodities. In other words, in the digital world, why do we even need a fixed arbitrary currency such as gold? Why can't the digits represent the goods themselves, that are then traded? Rather than have a gold or silver backed currency, the currency could be backed by goods that are sitting in a warehouse. This would be far more efficient than having gold sitting in a vault that never gets used for anything practical. For example, what if I produced t-shirts, I could put a sell order for a pallet of t-shirts. A retailer could buy the t-shirts at wholesale and resell them at a profit. The 'receipt' for the t-shirts could then be traded many times before they are actually redeemed by the end user allowing the t-shirts to act as an intermediary currency. Any other product could be used as a currency, as well, in the same manner. This would distribute the value of the 'currency' and store the wealth of the market in the products themselves, removing the inefficiencies and security risks of having to store gold or silver. The technology that we have today will enable many new things to come. Imagine the number of computers that the characters that you are currently reading passed through between the tips of my fingers and the retina of your eye. This computer computational power is not going away anytime soon and can be exploited to implement all types of digital currency technologies that will make us more free and self-reliant in the years to come. As you can see, with technology, we are only limited by our imagination. I believe technology will bring us many new and wonderful things in the near future that will lead us to more freedom much like the internet has brought us the freedom to exchange information freely. It all begins by changing the way we think about the role of currency in the digital age. LET THE CHANGE BEGIN! Visit Tom Westbrooks’s webpage at LibertyTrade.net - where you can trade using sound money for a sound future.
|
