this post was submitted on 19 Mar 2024
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Privacy
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I'm not saying government fiat currencies shouldn't exist, just that they aren't needed for regular transactions.
Argument that monetary policy can be harmful
The natural business cycle has booms and busts, and government interference in that cycle (i.e. attempts to prevent the busts) can instead delay the busts and result in more severe downturns.For example, look at the recent inflationary period. We had a huge bull run largely fueled by really low borrowing rates, so when things started to crash, we couldn't lower rates to encourage expansion (or at least as refused to go negative), so we instead threw money at the problem, which is an inflationary policy. The result was rapid inflation, and we had to rush to raise rates to get that back under control, and the rapid rate hikes resulted in bank failures, layoffs, and high borrowing rates. If we had instead raised rates slowly from 2014 or so and on, we could've cut rates instead of throwing stimulus money at the problem.
But the main problem with fiat currencies is that the issuing authority has a vested interest in tracking transactions. Cash isn't really a thing for digital transactions, and if the government realizes it can discourage use of cash, it will.
Fiat and cryptocurrencies can absolutely exist. Use fiat when interacting with the banking system (loans, savings, etc), and use cryptocurrencies like Monero for keeping transactions private (e.g. shopping). The government raising rates only really impacts borrowing, so companies and borrowers will use the local fiat currency and you'll get the desired effects.
I'm honestly not familiar enough with international transactions to really weigh in on this. Maybe it's a good idea, IDK.
but that kinda defeats the point of a central authority having control: the value of any currency is entirely based on what you can use it for… unless you tied their value in a way that the government regulates - eg to have a banking license you must swap USD for eUSD and visa versa on a 1:1 basis without fees (perhaps they burn eUSD to get new USD; IDK - you can’t oversupply. it gets tricky)… anyway, beside the point: regular transactions is exactly what the government needs some control over
Not having a fiat currency isn't really as bad as people make it out to be. But we're talking about whether cryptocurrencies make fiat currencies ineffective.
Most people will likely keep using their local fiat currency because that's what credit cards, mortgages, and paychecks are denominated in. A minority (even a sizeable one) using an alternative currency won't change that. Even if most people use cryptocurrencies for transactions, the US can still require any federally backed transactions (i.e. anything touching regulated banks) to be denominated in USD.
A cryptocurrency merely keeps the fiat currency honest. If the fiat is more stable, people will keep their savings there. If the cryptocurrency is more stable (unlikely), people will switch to that and governments will react by tightening monetary policy.
Inflation numbers won't really be impacted because they'll just use some average across money exchanges to figure out the inflation figures for the fiat currency. Inflation is already benchmarked between currencies, so this doesn't change much.
So I honestly don't see much reason for change. If people move to cryptocurrencies in droves, the Treasury will just issue fewer dollars as needed to keep inflation in check.
But what we get in return is pretty great! I can now make international transactions without going through international exchanges, so fees would likely end up being lower. I can use the cryptocurrency as cash in digital transactions to maintain privacy from my bank and potentially government. If I go to a country like Argentina or Turkey, I can avoid day to day inflation. If I go to a country like Venezuela or Cuba, I don't have to play games with black market money changers to avoid government price fixing. I'm also much less likely to get my payment into compromised, so this would make things like virtual credit card numbers unnecessary because attackers knowing my payment info doesn't allow them to initiate transactions.
The main problem is many places don't accept crypto, so that's why I haven't used it much. I'm probably never going to keep a lot of my money there, but perhaps I'd load it up for a trip or monthly expenses or something.