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IPFS News Link • Fiat Currency

Sound Money Vs. Fiat Currency: Trade and Credit Are the Wild Cards

• https://www.lewrockwell.com, By Charles Hugh Smith

Our convictions about money are quasi-religious: heretics are burned at the stake. I'm not sure which stake I'll be tied to, because all the conventional choices–fiat currency, sound money (gold, Bitcoin) or debt-free currency (a.k.a. MMT)–are all fatally flawed.

To understand why, consider the wild cards in any monetary system: global trade and credit. Let's start with credit, which as David Graeber explained in his book Debt: The First 5,000 Years, has been an integral component of monetary arrangements since the dawn of civilization.

Taxes must be paid and seed purchased for the next crop, and so credit in some form–notched sticks, bills of sale, purchase orders, loans–is the lifeblood of commerce and state revenues. Credit naturally divides into short-term commercial credit–credit extended until the goods or payment are delivered–and longer term credit secured by collateral.

In traditional economies in which gold and silver are money, credit was generally limited to commerce, as credit based on loaning surpluses of gold and silver was limited by the scarcity of those metals. But the demand for credit did not diminish; rather, it increased, which is why small banks (that often went bust) emerged in the 1820s in America to meet the demand from small enterprises for credit to expand.

In an economy in which gold is the only money, credit is limited to a percentage of gold held in reserves, as much of the reserves must be held to fund customer redemptions / withdrawals. This limits the availability of credit.


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