Sunday, 10 August 2014

Is bitcoin closing in on usurping the sovereign power of creating money?

Bitcoin is a very exciting and innovative technology.
Bitcoin has for the first time ever made all of us realize that anyone - not just sovereign states - can invent a monetized money-like crypto-medium-of-exchange that could become very popular very quickly and may result in improving the world in a very positive way.
The power to create money is a sovereign power. Sovereign powers (for example, to be a state, with a constitution, print fiat money, etc.) are the second highest level of power. Only judicial power is higher: the supreme court judges can remove the president.
The fact that bitcoin is almost (not actually yet) usurping a sovereign power - the power to create money to be used on a national and global scale (private money was created on a national scale in the past) - is an historic event. At the moment bitcoin is still not yet money: it is a monetized money-like crypto payment platform with a relatively unstable non-monetary real value , but it is getting closer to being money.
If bitcoin were ever to actually become money, i.e., a monetary item with a relatively stable real value that accountants can assume to be perfectly stable like they assume all fiat currencies are perfectly stable in real value during low and high inflation and deflation under the historical cost paradigm when they implement the traditional Historical Cost Accounting model, then it would create a legal storm because I think all countries´ legal systems state that only the sovereign state can create money: a monetary item which is subject to inflation and deflation when a central bank is involved. 

The reason bitcoin is not banned outright globally is the fact that it is not money: it is a property (as ruled by the US, China and other countries): a variable real value non-monetary item. Sovereign states generally have no problems with newly invented assets/properties.

Sovereign states, however, guard their unique power to create money very jealously. The status quo may come under attack in the future depending on whether bitcoin - or maybe its successor - can actually be real money, i.e., a medium of exchange, a relatively stable store of real value and consequently a relatively stable unit of measure for accounting purposes.

I very much doubt that sovereign states would let the money supply be controlled by unknown people in a decentralized manner.  The money supply is a matter of national importance for every nation. 

Nicolaas Smith Copyright (c) 2005-2014 Nicolaas J Smith. All rights reserved. No reproduction without permission.

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