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How to understand central banking and the fiat currency system: All money is a coin created by a national government. USD is America Coin, Sterling is UK coin,

How to understand central banking and the fiat currency system: All money is a coin created by a national government. USD is America Coin, Sterling is UK coin, Yen is Japan coin, etc. Within the boundaries of the nation, everyone uses the national coin. All goods and services are produced somewhere. If produced and consumed in the same nation, the same coin is used. Things get interesting with international trade. All countries cannot produce every single last thing they want. So they have to purchase from other countries. And the other countries require the use of their own coin when buying their goods and services. Exporters get paid in their nation’s coin, which becomes an important source of foreign currency for the central bank / government. More exports = more conversion into the nation’s coin = more forex. If a car exporter sells cars, the central bank will facilitate payment to them in local coin, but the central bank will take and store the forex. Things get very interesting (and corrupt) with imports. In any given nation, there is only so much forex. If you try to acquire more forex (like USD) by printing more local coin and then trading it for USD, you will get inflation. So countries with well managed central banks try and avoid this. So who can use the limited USD to import what they want becomes subject to political will. Often politically favored firms get access to the USD to buy the goods and materials they need, which they then sell locally. If there simply isn’t any more USD to buy stuff, competitors can’t enter to be an importer. As the most important good in the entire world - oil - is traded almost exclusively in USD, every country has an everlasting and unquenching thirst for USD. This gives the US enormous power, as it can print more money with way less risk of inflation than other countries can. It also lets the US get ever cheaper goods and services from abroad with such demand for a good that takes a mouse click to produce (USD). Bitcoin (and other cryptos if they can be successful) is extremely dangerous to this model because it is not controlled by any government. It is exactly like the old gold system, except way better because you don’t need to protect the gold with soldiers and vaults, move it with huge ships, and so on. It’s gold on the internet. If goods start being priced in Bitcoin directly, it will be akin to the old global system of everything being priced in gold. But in general, think of fiat money like coins and central banks as a single centralized validator node that has sole authority to mint new coins.

JumpCrisscross 4y ago
> the most important good in the entire world - oil - is traded almost exclusively in USD This isn’t true and hasn’t been for decades. Oil is just a special case of the far larger American import wallet, the real underpinning—together with its capital markets’ strength [1]—of U.S. dollar hegemony. [1] https://www.bloomberg.com/opinion/articles/2022-03-16/saudi-arabia-s-oil-for-yuan-proposal-won-t-threaten-the-dollar https://www.bloomberg.com/opinion/articles/2022-03-16/saudi-...
IMTDb 4y ago
Being able to print money easily is an essential feature of a successful national currency. It gives the power to central banks/government to react to event by adapting the supply of money to the economy. Bitcoin takes that away. If we take the COVID example, most countries significantly supported their economy by printing truckloads of money to allow companies to pay their employees despite their activities basically disappearing overnight. Some even gave that money directly to the population (eg: stimulus checks). This was only possible because money is a mouse click away, all we needed to decide is how much we wanted to print, since printing money has consequences. The only question was the balance, not the capacity. Remove that ability altogether, and COVID would have been an absolute bloodbath. Without any help from government/central banks, unemployment rate would have skyrocketed. More people on welfare and limited supply of money would also have meant that the benefits would have had to be lowered/dropped. A dire perspective compared to the relative "calm" we had if you consider that the economy almost stopped for two years straight. It's easy to bash on central banks and governments, but they serve an essential purposed in piloting the economy, slowing things down when they turn crazy, and supporting them in times of need. They aren't perfect - of course - but the alternative of having no one the driver seat is absolutely terrifying and will lead to catastrophic situations that were the default few decades ago.
- MarkPNeyer 4y ago
  > if you consider that the economy almost stopped for two years straight It wasn’t Covid that did this. It was government mandates in response to Covid. Printing money let everyone who supported these government actions ignore all of the tradeoffs involved and obfuscate what, under hard money, would be a direct comparison. What you are arguing for is a kind of financial authoritarianism. You are using words like “driver’s seat” and “pilot” to describe an intense amount of power in the hands of unelected persons. Financial authoritarianism can be used to pay for other kinds of authoritarianism like lockdowns, concentration camps, or a war spanning multiple decades and the entire globe. The First World War would have ended much sooner if the belligerents were unable to steal the wealth of their populace by printing money. The arguments you are making, that recessions need money printing - those arguments were going to be made by government-funded academics who obviously have an incentive to argue that governments should not be constrained in their budgets. Hard money makes the cost of government action immediate and legible. Hard money puts constraints on what the government can do without taking money directly from people who feel the cost immediately. This is why authoritarians really don’t want hard money.

JumpCrisscross 4y ago

> the most important good in the entire world - oil - is traded almost exclusively in USD This isn’t true and hasn’t been for decades. Oil is just a special case of the far larger American import wallet, the real underpinning—together with its capital markets’ strength [1]—of U.S. dollar hegemony. [1] https://www.bloomberg.com/opinion/articles/2022-03-16/saudi-arabia-s-oil-for-yuan-proposal-won-t-threaten-the-dollar https://www.bloomberg.com/opinion/articles/2022-03-16/saudi-...

IMTDb 4y ago

Being able to print money easily is an essential feature of a successful national currency. It gives the power to central banks/government to react to event by adapting the supply of money to the economy. Bitcoin takes that away. If we take the COVID example, most countries significantly supported their economy by printing truckloads of money to allow companies to pay their employees despite their activities basically disappearing overnight. Some even gave that money directly to the population (eg: stimulus checks). This was only possible because money is a mouse click away, all we needed to decide is how much we wanted to print, since printing money has consequences. The only question was the balance, not the capacity. Remove that ability altogether, and COVID would have been an absolute bloodbath. Without any help from government/central banks, unemployment rate would have skyrocketed. More people on welfare and limited supply of money would also have meant that the benefits would have had to be lowered/dropped. A dire perspective compared to the relative "calm" we had if you consider that the economy almost stopped for two years straight. It's easy to bash on central banks and governments, but they serve an essential purposed in piloting the economy, slowing things down when they turn crazy, and supporting them in times of need. They aren't perfect - of course - but the alternative of having no one the driver seat is absolutely terrifying and will lead to catastrophic situations that were the default few decades ago.

MarkPNeyer 4y ago
> if you consider that the economy almost stopped for two years straight It wasn’t Covid that did this. It was government mandates in response to Covid. Printing money let everyone who supported these government actions ignore all of the tradeoffs involved and obfuscate what, under hard money, would be a direct comparison. What you are arguing for is a kind of financial authoritarianism. You are using words like “driver’s seat” and “pilot” to describe an intense amount of power in the hands of unelected persons. Financial authoritarianism can be used to pay for other kinds of authoritarianism like lockdowns, concentration camps, or a war spanning multiple decades and the entire globe. The First World War would have ended much sooner if the belligerents were unable to steal the wealth of their populace by printing money. The arguments you are making, that recessions need money printing - those arguments were going to be made by government-funded academics who obviously have an incentive to argue that governments should not be constrained in their budgets. Hard money makes the cost of government action immediate and legible. Hard money puts constraints on what the government can do without taking money directly from people who feel the cost immediately. This is why authoritarians really don’t want hard money.