What's the problem with money today?
As seen in the last section, because money represents your time and energy, it stands to reason that you should be able to do what you want with it, but also choose what you consider the best form of money: this has happened through most of human history, where money took the form of whatever people considered to possess the best properties for it. That included portability and divisibility (your house may be worth a lot, but you can’t take it with you or divide it into small change), durability (remember the milk?), and, crucially, the ability to hold value over time (remember those cheap batteries!). Many instances of money arose, from salt (the origin of the word salary) and seashells, to glass beads and cattle. But one money was successful above all others, enduring across millennia: gold. Gold is relatively portable, divisible, extremely durable (it does not corrode), and holds its value over time. Why does gold hold value over time? Because, in addition to its durability, it is scarce, and not easily produced. It takes effort and expense to extract it from the earth. If money is easy or cheap to produce, those that can will always make enormous amounts of it (why wouldn’t you?). Inevitably, the market is flooded with new units of currency, degrading the value of existing units. If money could grow on trees, it soon wouldn’t be money anymore: It would be so easy to obtain that no one would consider it valuable.
Today’s money is both easy and very cheap to produce: banknotes are made of paper or plastic, and most money is digital rather than physical, only existing in bank and government databases. Additionally, whereas government money used to be backed by and redeemable in gold, this isn’t the case today. If it is so easy to produce, why does it have any value? The simple answer is, because the government tells you so. But surely government is responsible and can be trusted not to overprint and devalue our money? Sadly, this is where human nature cannot be trusted. During their short mandates, governments will always have an incentive to print money and spend it in order to gain popularity and reelection. Part of the reason for this is that the damaging effects on society are not immediately noticeable, and can be left for future generations and governments to deal with.
Those who suffer the most are the poorest, for whom the effects of inflation, though insidious, are devastating over time. Not only can the poorest not save for the future because their money loses value, but they cannot afford to buy assets which protect them from inflation (or beat it), such as housing. Today, this also applies to an increasing proportion of the middle class. Conversely, the wealthiest can not only protect themselves from inflation by buying real estate or company stocks, but benefit from preferential interest rates on loans (because they have a good credit score) to buy even more of these. This inflates asset prices further, meaning that those closest to the money source benefit from new money (cheap credit) before inflation occurs (the so-called Cantillon effect). The problem is not so much an increasing wealth gap (if everyone has a good quality of life, who cares if some people are billionaires?), but the fact that poor people get poorer, and are not able to rise up out of poverty, even through hard work. This becomes a generational downwards spiral: their children start life with less education and opportunities, and inherit nothing.
One can quickly see that a welfare state is not the answer to the problem: increasing welfare spending means more money printing and more currency devaluation, further spreading poverty and further deepening it. Equally, though the merits or misguidedness of redistributing wealth from the rich to the poor, through taxation, is beyond the scope of this discussion, it is not difficult to see that this is, at best, a bandaid, which does nothing to address the roots of the problem.
Poor monetary policy is not the only problem when money is controlled by a central authority. A people’s freedom is inextricably linked to their economic freedom: you cannot travel, buy food, or organise a political protest, without money. Money can thus be weaponised by those who control it. This is a reality for billions of people across the globe living under authoritarian regimes, where expressing the wrong views can see your bank account (if you even have one) frozen overnight. And today’s liberal democracies are far from immune to this abuse of power: In early 2022, Canada’s Freedom Convoy, a political protest against COVID mandates, was shut down by freezing participants’ bank accounts. The government also leant on the crowdfunding platform, GoFundMe, which froze millions of dollars of donations to the campaign. The mainstream media told a story of violence, and of a movement populated by white supremacists. People on the ground, reporting through social media platforms, shared an atmosphere of good spirits, solidarity and peaceful demonstration.
Across the ocean, China is writing the story of where this slippery slope ends. It is one of the first nations in the world to begin implementing a central bank digital currency, or CBDC. Ironically, CBDCs were inspired by Bitcoin. They are a fully digital and programmable money, with one key difference: they are issued and controlled by government. Though various implementations of this are possible, what the technology allows for is a direct link between central banks and digital wallet holders (i.e. you), eliminating the need for intermediaries such as commercial banks. Together with the phasing out of physical cash, all transactions in an economy can thus be tracked and frozen at will. Money can also be controlled in other ways: it can be programmed with an expiry date in order to boost consumer spending, or allowed to be spent only in whichever sector of the economy the government currently wishes to prop up. And, of course, you can be prevented from spending it with any individual or organisation that has unpalatable political views.
The West is watching closely, and nations like the USA and the UK are already working on their own implementations, with UK prime minister Rishi Sunak recently extolling the economic possibilities opened up by his planned “Britcoin”. In the name of convenience, anti-money laundering, streamlining tax collection or distributing crisis relief funds to the population, we are all in danger of sleepwalking into a world where the notions of private property, privacy and financial autonomy have lost all meaning.