26 October 2008

Private Money = Stable Money

The monetary turmoil now underway is, in part, due to the fact that countries have adopted monopoly currencies and then proceed to abuse them without immediate consequences. The euro is about to collapse, as regional manipulation of interest rates and government deficit spending leads to the logical consequence. The solution is the anti-Euro, private, competitive currencies.

National and inter-national currency monopolies lead governments to eventually move to fiat money backed only by their threats against those who refuse to accept it and ability to tax the people to give it value. Currencies founded on intrinsically valuable specie money are always extinguished by central bankers. Once a monopoly fiat currency has been established, central banks proceed to over-produce bills, and entering into excessive debt, sustainable only through continued inflation.

In a private, competitive monetary environment, however, any private mint indulging in debasement of their coin would be punished by the markets. Their currency would trade at a discount, to the degree that it traded at all. Banks issuing banknotes bearing their own bank's name would, likewise, only put the issuing bank at risk for their value. An over-exuberant note-issuer would find their notes quickly discounted by the markets, forcing them to reduce their circulation or face a run.

Monopoly currencies are too tempting for governments to not leverage them as tools of indirect taxation. Once such currencies have been extensively over-leveraged, they collapse in an inflationary spiral. Only healthy currency competition between privately competing currencies in a free market can effectively discourage currency mismanagement.

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