The concept of private money, exemplified by cryptocurrencies such as Bitcoin, proposes a radical change to the current monetary landscape. This approach challenges the traditional state monopoly on money, suggesting a system in which several private currencies compete in a free market. I invite you to imagine that, like commodities in a competitive market, the most efficient and reliable currencies would survive, thus providing an alternative to the centralised monetary system.
Private money is a proposal to decentralise monetary control. Today, the economic literature is still searching for answers as to why the state monopoly of money is seen as inescapable. Traditional systems are flawed: they are inconvenient, inefficient and often prone to failure.
Money = Symbol
Money is a SYMBOL that allows indirect, present and future exchanges. Historically it was stones, grains, cocoa, salt (that’s where the word Salary comes from). Let’s take the example of salt. Salt was a commodity, it had a value known to all and had a specific use (which was to preserve meat) and then served as a symbol accepted by everyone.
Then that historical symbol accepted by everyone was GOLD, because it was difficult to counterfeit, because it was scarce and because it could not be generated in one place, it was distributed all over the world. GOLD is durable, malleable. Gold is valuable because there is little of it and nobody controls it. It is globally unmeasurable.
Let us redefine Money as ‘something’, a symbol, which is accepted by all to buy goods and services, repay debts and taxes. Thus the first currencies appeared.
People from different regions of the world started to turn to this very convenient and successful invention, and the form of money in the form of coins started to spread very quickly all over the world.
The appearance of such a universal and convenient monetary system removed a large number of restrictions and barriers and accelerated the development of economy and trade, as it made the process of exchange of commodity values very convenient and simple, i.e. people at some point agreed that the money all over the world will be metal coins.
The next innovation in the history of money development was, of course, the appearance of bank notes, i.e. paper money again appeared because the use of gold metal coins at that level of development of the economy became inconvenient, which really slowed down the development. Imagine, back then, to make any big purchase, especially if it is between countries, between continents, you had to send a ship with gold or with silver across the ocean to get goods. Really you will agree with me that it is very inconvenient.
In the beginning, paper money did not circulate much, but was rather a kind of debt obligation, indicating that the owner of that banknote owned a certain amount of money. The first, rather primitive banknotes had very little protection against counterfeiting. Gradually, however, improvements were made, and paper banknotes began to have watermarks, elements that were not always present in the banknotes difficult to counterfeit, and then, as the protection of paper banknotes became more or less serious, paper money became more widely used and circulated.
And this form of paper money greatly simplified and accelerated the process of exchanging goods and securities. The development of the banking system made it possible to settle by cheque, which in turn became another innovation in the world of commodity-money relations and, in fact, a new, cashless form of money.
The use of such means of payment spared the parties to the transaction the need to actually transfer the money supply.
With the development of information technologies, such as the Internet, this form of cashless money rapidly evolved into electronic money. Today, the spread of cashless payments has reached such a level that in many developed countries bank credit cards have almost completely displaced paper banknotes or coins. And the electronic form of cashless money in general has taken the level of convenience and speed of exchange of goods and securities to a new level. And, in the process, it has greatly stimulated the development of the global market and economy.
Private money, without state intervention
As we have highlighted, the private money proposal seeks to dismantle the state monopoly on the issuance and management of money, introducing an innovative system based on free competition between different private currencies. This approach allows the market to act as a natural regulator, filtering out those currencies that are insecure, poorly backed or poorly managed. In this way, only the most reliable and effective currencies in fulfilling their role as a medium of exchange and store of value remain in circulation.
In addition, it is the users themselves who decide the specific purpose for which they will use each of these currencies, reflecting a diversity of needs and preferences.
For example, in Argentina, pesos are commonly used for day-to-day market transactions, while the dollar is preferred for short- and medium-term savings. In the case of Bitcoin, this cryptocurrency has become a popular choice for long-term savings, allowing users to diversify their savings and investment portfolio. This choice of currencies illustrates how consumers can adapt their monetary use to different economic situations and objectives, demonstrating the flexibility and adaptability of private money in the modern world.
In the economic literature to date, there is still no answer to the question, and why the real monopoly of the state on the issue of money is seen as an inevitability.
Bitcoin is a virtual version of private money, which unlike fiat money is not imitated by the state. Unlike fiat money, it is not issued by a central organisation, thanks to blockchain technology, which has made it possible to realise this philosophy and gain all the advantages of private money.
There is no specific regulator, individual or organisation behind bitcoin that influences the issuance of bitcoin. The issuance of bitcoin is controlled by software code that is hosted on a decentralised computer network.
The issuing rules, known as Halving, are transparent and clear to everyone and no one can influence them in any way, this is by the way one of the reasons why bitcoin, as the first digital currency, is so quickly popular, as it is easy to agree on what is money, which is a monetary unit as there is full transparency on what rules are used for issuing, there is full confidence in this currency that there will be no manipulation.
In addition, there are thousands of cryptocurrencies. There is competition between different currencies for the convenience and security and for the users as there is convenience among different advantages they offer, such as low transaction price, high security, anonymity and many others that also make cryptocurrencies more and more popular among people.
Central Banks’ Tools against Private Money
The Central Banks’ response introduces a relevant debate on the Central Bank Digital Currencies (CBDCs) that they themselves will issue in the near future. These represent a form of centralised monetary control that, according to some experts, could lead to increased surveillance and restrictions on individual financial freedom. The proposal for CBDCs suggests a world where governments can directly control transactions, raising concerns about privacy and economic autonomy.
In addition, there are economic theories that suggest a different alternative: state-level gold-backed digital currencies. This approach, which combines the robustness of gold with the efficiency of digital technology, could provide a constitutional barrier against excessive control and centralisation. Historically, gold and silver have functioned as defences against inflation and government control, providing a more stable basis for currency.
While CBDCs could be a step towards greater efficiency in transactions and monetary policy, they also carry the risk of excessive centralisation and control. In contrast, private money and gold-backed digital currency proposals represent a move towards monetary systems that are more transparent, decentralised and less susceptible to government manipulation.
We face a future in which different forms of money will coexist and be used for different purposes. While CBDCs and private money represent distinct monetary futures, both offer lessons in transparency, security and financial freedom.
How do we Educate for this Future?
In this changing landscape, it is crucial that we educate ourselves about these diverse monetary forms. How do we prepare ourselves to navigate a world where different currencies coexist and serve specific functions? I invite you to reflect and educate yourself about this multi-currency future. Understanding these dynamics is not only essential for personal financial management, but also for actively participating in the evolution of our global economy.
