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IPFS News Link • Currencies

An Asset Backed Currency Could Be Our Monetary Fix

• by Zack Sorenson

The enumeration of these functions represents an attempt to present money and the banking system as organized and the product of deliberate design. Money was never designed, and banking emerged from custom and expediency. Today's central banking systems might ultimately represent a purposeful design, but it isn't clear that their purpose is to create money that does what it is meant to do in the best possible way. Instead, the priorities seem to be the stability of the state, followed by stability of wealth. If money was designed only to best fulfill its core functions, how would it work?

Money is a technology which evolved out of natural economic interactions, and it is not naturally associated with particular functions. Economist Bob Murphy explains why money is money, and having functions is not what makes an asset money. An asset becomes money when it has higher marginal utility than other assets. This means that even if you have more and more of it, each new amount of it is still valuable. Or, this is at least more true for the money asset than it is for any other, meaning people will place a priority on obtaining it over other assets after basic needs are met. If you need a backhoe and 500 pounds of gravel for a project, then an additional backhoe and 200 pounds of gravel are worth a lot less to you than what you basically need to get the job done. Money, however, can pay for those basic needs, and leftover money can pay for other things.