Neither created out of debt, nor via selling speculative assets, nor collateralized, pegged or algorithmically stabilized, ideal money should carry sustainable intrinsic equity that supports its long-term self-sustenance independent of its issuer/creator.
Today’s fiat or paper currency is mostly created out of debt. If any of the variants of fiat money qualified as Ideal Money, John Nash’s quest for ideal money would have been long over. Neither can the recent trend to sell speculative crypto assets as stablecoins lead us anywhere close to the concept of ideal currency.
In previous blogs we discussed sustainability and trustless guarantee as the first two requisites of Ideal Money. In fact both of those characteristics of Ideal Money closely linked to what we expound in this article — “Intrinsic Equity.”
Intrinsic means something inherent, innate, inborn, inbred, natural or native. The intrinsic value of something is said to be the value that that thing has “in itself,” or “for its own sake,” or “as such,” or “in its own right.” It is self-reliant, independent, and free of the influence of others. Philosophically it can be argued that the concept of intrinsic value itself is fallacious, and almost nothing in the world of trading and money has “intrinsic value.” Even gold would not have value unless someone else would be willing to pay for it. Nevertheless, it’s easy to believe in its value because humanity has done so since recorded history. But that only translates into greater trust, not actual value.
Fiat currency has value because everybody else gives it value, and not because it has an intrinsic value. The value ascribed to it over time depends on stability of issuing government, fiscal discipline, economic growth as it is backed only by government’s good faith.
Intrinsic Value Vs Intrinsic Equity
If value apparently cannot be intrinsic, can equity be intrinsic? In accounting, equity (or owner’s equity) is the difference between the measurable value of the assets and the measurable value of the liabilities of something owned. Such measurable value and measurable liabilities arise from integrated tangible economic activities that the currency represents in a trustless guarantee. A company’s share certificate is the closest thing akin to intrinsic equity that is redeemable in a free market independent of its issuer. Similarly, some of the frequent flyer / loyalty program points may have the potential of portending intrinsic equity if designed to commit the offered monetary discount before awarding the loyalty points. However, the intricacies of how precisely intrinsic equity can practically get ingrained in a currency is too avant-garde without actually creating one, so it’s better left for another time.
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