What’s so special about being ‘sovereign’?
The real roadblock to cryptocurrency’s adoption is that no nation has declared, “This is worth something because we say so.” But how important is that?
Not really all that important from a historical perspective.
Media of exchange go back to the dawn of humankind. Even nomadic hunter-gatherers understood gifts and favors and indebtedness. When these tribes settled into communities and started farming, the amount of effort it took to harvest a measure of grain became a way of quantifying these. At some point around 5,000 years ago, a weight of shiny rocks was specified as standing for that amount of effort or the amount of goods that would require that effort. Those shiny rocks were then fabricated into tokens of a standard size and shape for ease of transaction.
Here’s the important point: It wasn’t for at least another 2,000 years that someone came up with the idea of putting the king’s face on those tokens. Money derived from the producers, not the government. Even if you accept the proposition, as I do, that a sovereign state has the right and responsibility to pursue a monetary policy, it’s still a reach to conclude that the government must own the money supply.
Folding money wasn’t invented until about a thousand years ago when Chinese merchants began swapping their own promissory notes, jiaozi, and established a bank to clear them. These were initially more like forward contracts, with the denomination customized to the needs of the buyer and seller, but they became wildly popular once they were standardized in denominations small enough for the average shopper to earn and spend. Even then, the Song Dynasty government is credited only with recognizing jiaozi, not inventing it and certainly not backing it.
And the next time you hear someone compare 2017’s bitcoin rush to “tulip mania,” the first known financial collapse, remind them that the bubble they’re referencing took place in 1637. Banknotes weren’t issued in Europe until a Swedish bank took it up in 1661, and none of them were backed by a fixed quantity of gold until the British West Indies found the need in 1704. So
you can tell them that tulips have a longer history in the West as a medium of value than either paper money or the gold standard.
So much for sovereign currency. Now let’s take a hammer to the concept of sovereignty itself.
The modern nation-state is as much a recent construct as anything else we hold way too sacred.
Here’s Lonley Planet’s map of Germany:
Now here’s a map of what Germany looked like around 500 years ago, according to the German Historical Institute:
If you think passport control is backed up at Frankfurt Airport now, imagine what it must’ve been like driving an ox cart from the Duchy of Pomerania to the Electorate of the Palatinate.
These Far Far Aways weren’t exactly sovereign in the modern sense of the word. They were more like a dysfunctional family with lances, broadswords and battleaxes. Each one of these postage stamp-sized territories defined which aristocrats had the right to do what they wanted to there.
Our current definition of sovereignty put an end to this map.
Somewhere in the Bishopric of Munster sits what was then called the Province of Westphalia. That’s where a peace treaty was signed in 1648 to end the Thirty Years’ War. (What? You don’t know about the Thirty Years’ War? Sweden versus Austria: What an epic match-up! And the stakes couldn’t be higher: winner got to choose what language everybody would be singing in on Sunday morning!)
The Peace of Westphalia defined what it meant to be a sovereign state, and it has held up pretty well for almost 400 years. Essentially it determined that wars of religion were stupid, wars of conquest were a zero-sum game that would never end if it were normalized, that most international matters could be dealt with diplomatically, and that rulers should focus on their own domains and not interfere with the affairs of their neighbors.
Over time, the definition of “state” changed — or continued to change. (The term “citizen” is related etymologically to “city,” not “nation” or “state”.) The 19th- and 20th-century concept of nationalism led to larger nation-states that would include broader swaths of people who shared language, ethnicity and other accidents of history. (This goes for America, too. From the founding of the Republic up until about a hundred years ago, people considered themselves Pennsylvanians or Georgians first, and Americans only in the broadest term. The federal government was established grudgingly, only when it became clear that the individual states — decidedly not provinces — were more interdependent than they cared to admit. The nativist streak here today would be amusing if it weren’t so frightening.)
The last word on what defines a sovereign state was actually written as recently as 1933. The Montevideo Convention, signed by most of the sovereign states in the Western Hemisphere, focused on defining the international standing of states that achieved independence by throwing off colonial powers — you know, like the entire Western Hemisphere. But it had such good ideas that the League of Nations and later the United Nations adopted it as a standard.
Essentially, Montevideo says that you’re sovereign if you have a:
- defined territory,
- permanent population,
- government and
- capacity to enter into relations with other states.
This “declarative theory” of sovereignty adds one stipulation to the fourth requirement: that capacity has to extend beyond just having enough guns and ammo to seize power and broadcast a declaration of independence.
Of course, it’s all baloney now. The greatest threat to worldwide stability isn’t one rogue state that China could take off the board as soon as its annoyed enough. It isn’t a Shiite republic that’s living on borrowed time. It isn’t the paranoid autocracy in Russia.
Well, maybe it’s the paranoid autocracy in Russia. But coming up a close second is non-state actors. America isn’t fighting Redcoats anymore. Or the Japanese Imperial Forces. This millennium we’ve fought nothing but stateless actors. Sovereign states are clearly on defense, to the point where we’re allied with nations that we simply do not share values with just to maintain the international order.
Meanwhile, some countries are chipping away at what it means to be a sovereign state. Offshore tax havens have become extraterritorial extensions of commercial interests that seek to avoid the laws and tax regimes of their home countries. So if you’re a country and you can’t tax your corporate citizens and you can’t enforce your laws on them, then you’re not really governing, are you? Washington’s latest frenzy of tax reforms is in direct response to these challenges. It’s not, as critics say, a giveaway to the rich — it just lets the rich get a hold of all the money they’ve already taken.
The Panama Papers are another result, revealing just how big the holes in the world’s pockets are. Forbes, not exactly a sister publication of The Daily Worker, estimates that there’s currently $21 trillion-with-a-T parked along some very expensive beachfront territory.
And tech- and blockchain-savvy Estonia has taken the lead in putting paid to the “permanent population” constraint. The Baltic republic established an “e-residency” program that allows blockchain and other entrepreneurs to access online payment providers. This at first appealed to makers from the developing world who sought easier access to European markets and payment providers. But as the U.K. approaches Brexit, British firms are looking at e-Estonia for much the same reason. As of now, e-residency is neither a path to citizenship nor permission to enter or reside in Estonia. But that could be relaxed as time goes forward, loosening that permanent population constraint. Meantime, if you’re an e-resident and can’t enter Estonia, the Estonia is reaching beyond frontiers to encompass you. So much for defined territory.
So the institution of sovereign money is not as entrenched in the rise of civilization as the entrenched interests would have you believe. Nor, for that matter, is the institution of nation-state sovereignty in the first place.
As nation-states begin to ebb in the face of non-state militias, transnational commercial interests, global financial fungibility and the free-flowing tendency of digital data, it naturally follows that fiat currencies will follow suit.
Maybe we’re just one cock-up by the Federal Reserve or European Central Bank away from alt-coins being the reserve currencies that keep the whole game afloat.
