Why money aka Bitcoin and the state should be seperate
Bitcoin Insights #8
This edition dives into the thesis from Newsletter #3, “The Mystery of Satoshi Nakamoto and the Evolution of Bitcoin,” which argues that money and state should be separated.
Is money and state separated in the EU?
When looking at Germany or the European Union (EU), money and state are not entirely separated today. However, certain mechanisms aim to ensure some degree of independence, particularly in monetary policy.
European Central Bank (ECB)
The ECB is responsible for monetary policy in the Eurozone and operates (in theory) independently of the governments of EU member states. This independence is enshrined in EU treaties to ensure that monetary decisions are not directly influenced by political forces.
The primary task of the ECB is to ensure price stability, which generally means keeping inflation at a stable level of around 2% per year. However, whether a planned annual inflation of 2% (on average) truly constitutes price stability is debatable.
Fiscal Policy vs. Monetary Policy
Fiscal policy, including decisions about government spending and taxes, is the responsibility of the national governments of EU member states. Governments have direct influence over the economy through fiscal policy.
Monetary policy, on the other hand, is managed by the ECB at the European level. This separation is meant to prevent governments from influencing monetary policy through their spending decisions, such as by pressuring the central bank to print more money.
Coordination and Influence
Although the ECB operates independently, there are forms of coordination between national governments and the ECB, especially during crises. Additionally, governments have influence over the selection of ECB leadership, which can indirectly lead to political influence.
In Germany and the EU, there is a strong connection between the state and the banking sector, evident in banking regulation, government bonds, and state bailouts during crises.
In summary, money and state are not entirely separated in Germany and the EU, but important institutions and rules exist to ensure a degree of independence of monetary policy from state influence.
However, in recent years, these established rules have increasingly been broken — for example, the direct financing of states by the ECB, which was originally prohibited. During the financial crisis of 2007/08, the ECB increasingly purchased government bonds from nearly insolvent states.
The issue is that self-imposed rules can easily be broken. If breaking them is possible, it will happen sooner or later.
Why the separation of money and state is important
Historically, states have always controlled money within their territories. This control allows them not only to steer the economy but also to exert power and influence over their citizens. While this control can sometimes have a stabilizing effect, history also shows that it is often abused — whether through excessive money printing leading to hyperinflation or the use of money flows to monitor and restrict citizens’ freedoms.
Bitcoin turns this system on its head with a decentralized and pseudonymous currency system. It allows people to regain financial sovereignty. No government can manipulate the supply of Bitcoin or block access to Bitcoin wallets. The separation of money and state is not just a theoretical concept but is at the core of Bitcoin’s resilience and stability.
The role of Central Bank Digital Currencies (CBDCs)
With the (planned) introduction of Central Bank Digital Currencies (CBDCs) like the digital euro (Retail CBDC) by the ECB, the discussion about the separation of money and state becomes more urgent. CBDCs, if not properly designed, could significantly restrict citizens’ financial privacy. They offer the state the ability to monitor and potentially control every financial flow in real-time. Even though the ECB promises to ensure a certain level of privacy, the question remains: how much trust should we place in these assurances? What if political conditions change? What if new governments set different priorities? Once such a surveillance tool exists, it’s only a matter of time before it’s actually used.
Here, Bitcoin offers a robust alternative. Its decentralized structure makes it resistant to state intervention and allows everyone to operate freely and without surveillance. The separation of money and state protects not only economic stability but also personal freedom.
The parallel to the separation of church and state
It’s no coincidence that the idea of separating money and state is reminiscent of the historical separation of church and state. This separation was a crucial step toward individual freedoms and a society where power is divided and controlled. Just as the separation of church and state has protected religious freedom and diversity, the separation of money and state can enhance economic freedom and competition.
Bitcoin as a tool for freedom and innovation
Bitcoin is more than just a currency; it’s a tool for freedom and innovation. It enables people worldwide to manage their finances independently of state control. This is especially important in regions where governments act authoritarian or where currencies are devalued due to mismanagement. But even in stable democracies, Bitcoin provides a safeguard against the creeping erosion of privacy, freedom, and stable money.
The decentralization of Bitcoin makes it practically impossible for any individual or institution to dictate the direction of this currency. There is no centralized authority that can “shut down” or manipulate Bitcoin. This security and stability are invaluable in a world where state interventions and economic uncertainties are on the rise.
Conclusion: A future with Bitcoin
The separation of money and state is not just a philosophical consideration but a practical step toward a freer and safer society. Bitcoin shows us that it is possible to create a monetary system that is independent and resistant to state intervention. In a time when the power of states over their citizens is growing, Bitcoin offers a much-needed alternative.
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Philipp J.A. Hartmannsgruber holds a master’s degree in Finance & Accounting. He is a Founder of the Bitcoin Bundesverband. In 2019 he founded PJAH Consulting, a bitcoin-consultancy.
