Bitcoin Vs Sovereign Money As Tools For Monetary Reform

No one can deny the fact that the global economy is experiencing a crisis that necessitates a brilliant reform plan. It is in arguable that an effective remedy should be aimed at alleviation of the diagnosed problems. Despite the apparent independance of most of the world’s central banks, “politization” of money is one of the main catalysts of the current problems of the fiat economy. Throughout this article, I will present two proposals for monetary reforms via sovereign money and bitcoin.

Bitcoin and Monetary Reform:

As the value of fiat money is greatly influenced by the political agendas of national institutions, a considerable percentage of libertarians are calling for a return to the gold standard, while others believe that the market should select the currency that best meets the needs of the market’s participants. Denationalization of currencies has been already proposed in the 1970s to mitigate the monopoly of politically powerful countries on the global economy. Bitcoin is the first decentralized currency to fulfill the dream of denantionalization of currencies.

Bitcoin’s innate characteristics render it a suitable currency for monetary reforms. It allows payments to be sent directly from one person to the other, without having to deal with any intermediary parties such as banks. Bitcoin is also designed to counteract inflation, as the amount of newly created bitcoins, via mining, decreases over time and the last bitcoins will be created in 2040, to complete a total of 21 million bitcoins. Accordingly, bitcoin is more or less like gold backed currencies in that new currencies cannot be issued at will; however, in contrast to gold as a metal, of which more can be dug up from the earth, the number of bitcoin is limited right from the start of the protocol. As such, bitcoin production can never be forced and the currency cannot be inflated over time. That’s why Maurer described bitcoin’s concept as the new “digital metallism” in 2013. The large number of advantages of bitcoin; including its dissociation from politics, relative stable value, security and level of anonymity, had some expect it to prevail during the upcoming few decades, igniting global monetary reform.

Sovereign Money and Monetary Reform:

Sovereign money represents legal tender that is issued by a federal central bank. Sovereign money today exists in one of two forms; cash (banknotes and coins) and non-cash central bank, which is also known as reserves and circulates between central banks and bank accounts only, so sovereign money doesn’t circulate on transactions that take place at the level of customers’ commercial bank accounts.

Sovereign money aims at the restriction of speculation and in contrast to bitcoin, which denationalizes money, it promotes money nationalization. Sovereign money is based on a simple concept: any money in the customers’ accounts of commercial banks has to be declared as central bank money. Commercial banks won’t be able to use credit transactions to create book money, as creating central bank money will only be possible via the central bank itself. Reconstruction of the money market in such a way wouldn’t affect the assets of either the customers or the bank. After substituting book money with sovereign money, the value of assets will remain unchanged. Converting book money into central bank money, or sovereign money, would lead to conversion of money stocks into a new field of cashless transactions.

As commercial banks will be borrowing more money from the central bank, new money will be pumped into the system by leaving it to be determined by the government whether or not to use it at its own discretion. An evolving economy would need an increase in the total amount of money injected into the system. The government would decide if the additional money should be spent on social reforms, purchase of services, amortization of debts and lowering of taxes. The use of sovereign money would necessitate ruling out of the inflationary effects of such policy via the central bank which would modify the amount of circulating money with respect to the expected economic growth.

A reform that is governed by juridical means, will somehow eliminate the speculative nature of the current economic system. To appreciate the value of sovereign money in monetary reform, one must understand that speculation has far more disastrous effects on the economy than political instrumentalization might have.