The Separation of Currency & State — Part 1
How to Design Currency That Improves Our Societies
Let’s talk about how corrupt governments can influence currency and taxes:
Politicians want to be re-elected, so they provide services to citizens — road building, street cleaning, police protection, and education, to name a few. But it costs money to do this. And unfortunately, the government often spends cash it doesn’t have (read: goes into debt).
To pay off that debt, it raises taxes higher and higher, until citizens get fed up and stop paying. And when enough people evade taxes, a big part of a country’s economy goes underground. And, of course, the government (still) can’t pay its debts.
To remedy this lack of liquidity, it prints currency.
But printing currency increases the supply of money, and so the value of the currency goes down. In extreme cases, suddenly people can’t afford to buy groceries, let alone pay their taxes, and a vicious cycle occurs as the government prints more money to counteract the effects of tax evasion.
Essentially, inflating currency is a way to tax citizens: everyone’s money loses value, and the government gets the monetary benefit of spending the money it printed first — before the effects of inflation have taken place.
This story isn’t fictional. In fact, it’s a rather distressing pattern that’s happening right now in many countries, for example Argentina, where half the economy operates outside the official tax system and the net income tax rate for moderately wealthy individuals can be as high as 70%.
But corrupt governments and inflation aren’t inherent to human societies, and it’s possible to write a better story.
To do so, we have to design our currencies more deliberately and intelligently.
Create a currency that isn’t controlled by the government.
If the government doesn’t control the production of currency, it can’t overprint.
In theory, developing a currency that’s independent of any government will force officials to operate within their country’s means — if they don’t have the money for something, they can’t spend it anyways and go into debt, unless someone is willing to make them a loan.
Essentially, their spending will be constrained by their state’s economic output and creditworthiness.
Removing a government’s control over currency in this way can lead to real, tangible change. Once politicians can’t just throw money at a problem, they’ll have to work to benefit citizens in a different, smarter way.
And we can avoid the dire situation facing millions of people who struggle to survive in hyperinflationary economies.
Stablecoins could provide the currency we need.
When we’re thinking about currencies that fall outside the jurisdiction of the state, the natural solution most people arrive at is cryptocurrency.
These digital currencies, however, aren’t advanced enough to be well suited to our needs: they’re too volatile, susceptible to massive speculation, and there are too many crypto options to choose from.
But stablecoins could be the currency we need. These cryptocurrencies are designed to maintain a stable price and to hold real-world value, just like the U.S. dollar.
Because they aren’t subject to price fluctuations, stablecoins could be a way to break the cycle of governmental interference in currencies. And they could facilitate a shift in power from the government to the people.
Enter: An improved, economically stable society.
Using stablecoins rather than a currency controlled by the government would be a marked improvement for many citizens around the globe.
As risk decreases, an enormous amount of capital will pour into these emerging markets. There will be more opportunities for investment, including foreign funding, because investors won’t have to worry about currencies losing their value.
Removing this barrier to investment will spur tremendous economic growth, particularly in historically poverty-stricken regions of the world.Stablecoins could essentially allow developing economies to play out the “capitalism experiment” just as other countries have done over the last 200 years, but without the possibility of corrupt governments intervening and essentially stealing everyone’s profits.
While economic growth can’t be definitively linked to improving societies, the two are strongly correlated. Even governments with good intentions can become corrupt when they’re in control of the economy, so separating currency from the state can mitigate corruption and improve society as a whole.
In our next post, we’ll be continuing the discussion of the Separation of Currency & State, and the role that currency plays in both government and anarchy. In the meantime, please join our conversation on Telegram to share your thoughts.