Sharing A Currency Means Giving Up One’s Own Sovereignty

I’m no expert in economics, but this doesn’t stop me from having my own thoughts on all things economics.  Thus, if my thoughts on economics are skew somehow, you have to forgive me for having a weak forte in economics.  Hmm…, weak forte is an oxymoron?  Anyhow, in this blog post, I like to persuade you why holding on to sovereignty is bad for a country which shares a currency with other countries.  Beyond the scope of currency matters, the good and the bad consequences for a country to give up one’s sovereignty is entirely another topic in which I don’t want to delve into in this blog post.

There are 19 European countries that are using Euro currency.  These countries are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.  Certainly, you can think these 19 countries that are using Euro as a region in the West, westward of Russia and China.  To simplify things in this blog post, I like to say the West whenever I refer to these 19 European countries.  Contemporary economic troubles that are stirring unrests and provoking new economic fault lines in the West can be argued that one currency Euro is the source of troubles of the economic crisis in Greece and several other Euro’s member countries.

In my opinion, the U.S. Dollar or the China Yuan or Japan Yen and so on has always been more flexible than Euro, because Euro is not a currency for a coherent country but for 19 countries with incoherent economic policies.  Instead of seeing economic progress for all countries within one currency system, we are seeing some Euro countries do really well and others are either bankrupted or on the verge of defaulting.  Incoherent interests among these currency sharing countries have divided these countries from forming up a coherent economic plan.  Without a coherent economic plan, these currency sharing countries are failing to execute economic policies that would work for most if not all member states (i.e., countries that are using the same currency).

For an example, Greece of today may be a very good country for tourism and several other service industries, but this country does not have a strong foundation of manufacturing high value products.  Taking this narrow point of view on Greece’s economic structure, we can see that Greece has to import a lot stuffs for internal consumption.  What would happen when service sector and several other sectors fail to produce net profit for Greece?  Greece has to spend less on internal consumption of course.  Unfortunately, Greece’s economic crisis evolves with how Greece is spending more than Greece can make, thus the whole country is now bankrupted.  In this situation, we can see that Euro currency isn’t able to dictate the economic policy to Greece in a way that Greece won’t have to go bankrupted.  In this situation, Greece cannot print more Euro since it has no power to do so.  If Greece can print more Euro, it may be able to attain more Euro to pay off the debts at the cost of devaluing the Euro.  Without being able to print a country’s own money to get out of debts (i.e., work for short term at the expense of the purchasing power of the next generations), Greece may have to find other means of bringing home the bacons.

The example of Greece shows that country without one’s own currency can prevent a country from having a second chance of righting the sinking ship.  Without being able to repair a sinking ship, how one can expect Greece to be able to get out of the economic crisis?  Foreign countries can continue to lend money to Greece — increasing Greece debts without knowing for sure that Greece would be able to pay back — to help Greece sustains the sinking ship from sinking.  Nonetheless, without repairing the hole from the sinking ship, no amount of extra lending would be able to suddenly make the hole whole.  It’s like you keep on scooping the water out of the sinking ship while the hole keeps on letting in more water into the sinking ship.

Without having one’s own currency, a country may experience the devaluation of a currency without having any choice in the first place.  For an example, Germany’s economy got most things right, thus Germany doesn’t need to weaken the Euro for generating an attractive export industry, but Greece and other European countries need to have Euro to be weakened for various economic benefits.  If European countries are banding together to devalue the Euro for economic benefits, this means Germany will have to be a reluctant party to the devaluation of the Euro.  If the Euro is being devalued, Germans will see their wealth being stealthily taxed away by other Europeans, because currency inflation weakens the overall health of the wealth holding of every German.  Basically, Germans don’t have a choice if Germany wants to see Euro’s member countries devalue Euro for economic benefits.

In the long run, the disparity of the rich and poor members within a single currency system will become ever more so apparent.  The disparity of such a scale within single currency system will be the force that can eventually break the system apart.  Once the system breaks down, the rich members will go on, hopefully, with a better currency system.  The aftermath of a broken single currency system will make things a lot harder for the poor members.  The poor members will have to fight an uphill battle, because they lack the economic prowess.

A single currency system can work only if all member countries become one country!  As each member country gives up the sovereignty, each member country has to act as a state and not as a country.  This means the states need to listen to a centralized power.  This centralized power will execute general, coherent economic policies.  Sure, each state can have its own economic policies, but these economic policies would be localized and limited in scope and scale.  Since each member country gives up sovereignty to become a state, it’s pointless to spend the money that they don’t have to upkeep big military as if a country would do.  Thus the implication of truly giving up one country’s sovereignty for sharing a currency can go beyond the scope of economic matters.

Basically, a true country needs to be efficient in resource allocation.  Nonetheless, a true country also needs to be able to generate needed resources in the moment of need, thus the power of printing money comes in handy.  Perhaps, the power of mobilizing many states’ resources in a coherent manner in the time of need can also be very effective in stabilizing the crisis moment.  As long a true country has a clear, efficient picture of the resource allocation, it can figure out which resource needs to be generated in extra for strategic purpose.  The redundancy of a strategic resource can later bail out a country from a resource lack crisis.

If 19 European countries in Euro currency zone can become one true country, then the Euro may become more flexible.  Nonetheless, one’s own currency doesn’t necessarily translate into healthy economy for a country.  We had seen countries devalued one’s own currency to the point of the currency became worthless.

Quote from Wikipedia:

By late 1923, the Weimar Republic of Germany was issuing two-trillion mark banknotes and postage stamps with a face value of fifty billion mark. The highest value banknote issued by the Weimar government’s Reichsbank had a face value of 100 trillion mark (100,000,000,000,000; 100 million million).[15][16] At the height of the inflation, one US dollar was worth 4 trillion German marks. One of the firms printing these notes submitted an invoice for the work to the Reichsbank for 32,776,899,763,734,490,417.05 (3.28 × 1019, or 33 quintillion) marks.[17]  (Source: https://en.wikipedia.org/wiki/Hyperinflation)

To conclude this blog post, in my opinion, one’s own currency allows the possibility of currency manipulation.  Usually, a country manipulates its own currency to gain trade, tourism, and other advantages.  Nonetheless, if not careful, currency manipulation can drive one’s own currency into a currency hyperinflation, leading to a worthless currency in which nobody wants to have anything to do with such a currency.  Worthless currency won’t be able to support trade and so on.  Sharing a currency is not the same as having one’s own currency, and the disadvantages of sharing a currency are many.  The lack of the ability to freely manipulate one’s own currency, currency sharing country will have to rely on self-discipline in nation spending.  If a currency sharing country cannot produce anything of values to bring in a net profit, a currency sharing country must cut spending even more since money printing isn’t possible, leading to apparent austerity and poverty.

All Fiat Currencies Are Fallacies?

I think all fiat currencies are fallacies.  One most notable fact about all fiat currencies that scares me most is that all fiat currencies can be multiplied out of thin air.  The problem is that nobody has real control over a fiat currency’s multiplication.

What on earth I’m saying?  Let’s discuss this further.  Let’s say if the government that is responsible for a specific fiat currency is printing the money, then it can basically use financial tools such as interest rates to control the fiat money supply.  What if an enemy of a state is capable of printing the same fiat currency to introduce hyperinflation into an economy?  Even if the government is trying to stop inflation by raising interest rates, buying back government issue bonds, raising the banks’ reserve ratios and so on, these tools might be too blunted by then since an enemy is printing the government’s fiat currency in untold amount of units.

I might be wrong, but in my opinion fiat currencies are the derivatives of non-fiat currencies such as gold.  Unfortunately, even gold can be rigged with derivatives such as gold future contracts.  Without any real delivery of hard assets such as physical gold units, future contracts can be switched to different owners at specific contract prices, thus these future contracts are rigged to move prices.  With prices can be inflated or deflated at will, even gold itself is sound, the gold market itself isn’t sound.  Since gold isn’t using as a unit of money as it supposed to be in the past when there was a gold currency based system, a rigged gold market isn’t a catastrophe if the market gets corrected.  Nonetheless, a rigged fiat monetary market would be a catastrophic life changing event for all walks of life if this market gets corrected.  After all, modern societies are using fiat currencies as real money!

If the keeper of a fiat currency isn’t doing well in regulating ebbs and flows of the inflation/deflation and the flight of the currency, such a fiat currency may very well become valueless and destroy the whole economy of a country.  If a country’s fiat currency is too influential in the world market, the whole world market may as well appear to be on a verge of collapse if such a country’s fiat currency is out of whack.

Stanford Seminar’s YouTube Video On Bitcoin

Bitcoin is a new phenomenon for currency in general, and so people will definitely have all sorts of beliefs about it.  Obviously, some people have already thought that Bitcoin is a newest hoax yet that is out to get peoples’ money.  Some other people think Bitcoin is like a hybrid of ponzi and pyramid schemes where the ones who played with Bitcoin first would be the only ones that got all the profits and benefits, the ones who come in now are going to go broke as they will lose their money.  Some other people though think Bitcoin has the potential of becoming the global currency where there are pockets of regulations in corresponding governments, but the Bitcoin’s true values will lie with the people (hence how some people proclaim that Bitcoin is paupers’ money or poor peoples’ money).  Regardless of peoples’ different views on Bitcoin, in the end we have to wonder will Bitcoin be around for another 100 years?

My honest thought on Bitcoin is that I’m not sure Bitcoin could be around for another 100 years since someone might be able to break its’ encryption algorithm which is there to protect Bitcoin’s inherent values.  Nonetheless, I do think that paupers’ money in the electronic/digital form will be around for another 100 years and beyond unless the people of the world in whatever timeframe, beyond now, decide that they rather do business and communicate through media that aren’t Internet/digital things.  Imagine how the world will change radically when paupers’ money suddenly become the reality, because money will be changed hand much easier and globally.  Just like how the Internet had transformed commerce, information, business, retailing and whatever else that the Internet has had and will be transforming next; paupers’ money will probably transform many things on such a manner and scale.

Anyhow, I thought I would share with you guys a Stanford seminar’s YouTube video on Bitcoin.  In this video, a BTC China Bitcoin exchange’s CEO, Bobby C. Lee, shares his thoughts and beliefs on Bitcoin and the future of Bitcoin.  Anyhow, check it out right after the break!

Can Bitcoin Be Real Money?

The bitcoin logo

The bitcoin logo (Photo credit: Wikipedia)

Bitcoin is all the rage recently as value per Bitcoin has climbed really high.  As I’m writing this blog post, it’s about $866 per Bitcoin.  Furthermore, more reputable businesses are beginning to join the fun by accepting Bitcoin as payment for business transactions.  With Bitcoin is moving toward mainstream or so as people think it is doing so, we have to wonder how long will Bitcoin would shine right?

As we all know, money has to be backed by something.  Sure, money can be in various currencies, but all currencies have to be backed by something.  In the antiquity time, countries accepted all sorts of bartering items as currencies.  Nonetheless, most of those bartering items could not withstand the test of time.  Gold is one of those few bartering items that have withstood the test of time thus far.  Gold could be used as money in the antiquity time, and even today some parts of the world are still accepting gold as real money.

How can gold be so resilient against time?  For obvious reasons such as scarcity and so forth, gold cannot be seen as just another bartering item.  Scarcity is important, but gold has one more trait that is very very important.  People have often overlooked that gold has always been special throughout the globe and through time.  By special I meant since the antiquity people have found gold to be valuable and sexy.  Since the whole world is being captivated by gold since the antiquity, therefore gold cannot be easily discarded in time.

Bitcoin might have the appealing of gold if it can convince people that it too can be valuable and sexy, worldwide.  As I have mentioned earlier, money (currencies) have to be backed by something, and so we have to wonder what is backing Bitcoin, right?  I think what is backing Bitcoin is how people put Bitcoin into practice throughout the world.

Nonetheless, without a specific government endorsement, can Bitcoin last?  I think Bitcoin is special in that it’s not being bounded or controlled by a specific government, and yet the people throughout the world are willing to have faith in Bitcoin.  With that being said, if Bitcoin doesn’t have the appealing of scarcity, it would probably be just another funny money (i.e., monopoly money).

Bitcoin can be scarce since it does require tremendous amount of effort in mining it.  For an example, one has to be spending real money to buy expensive hardware before one can mine Bitcoin effectively.  One might have to mine 24/7 for months and years before one can have few Bitcoins.  Now, if one is really rich and wealthy, one can build many Bitcoin mining rigs that can churn out Bitcoin really fast.  It is all about being rich in the first place, right?  There is a saying and it might go like this, the rich get richer and the poor get poorer.

In summary, I think Bitcoin can be real money, but for how long I won’t know.  I know though that if people around the world use Bitcoin as money, then Bitcoin won’t easily be discarded.  If the whole world is using Bitcoin, then not a single country can stop Bitcoin from being used as money.  If the whole world is using Bitcoin, then politics will become less important when it comes down to currency manipulation.  Bitcoin can be traced just like how cash can be traced, but both Bitcoin and cash can be way more stealthy than most forms of currencies.  With stealth as one of its awesome traits, Bitcoin can definitely be facilitated as cash-like money.  With all of that being said, Bitcoin isn’t cash since it’s not physical.  Since Bitcoin has to be used in a digital form, it might just be inconvenient enough that some people will not want to use Bitcoin as their money.  Invention such as smartphone apps to facilitate the Bitcoin transactions might help Bitcoin to be seen as physical cash, because there are so many people who carry their smartphones around.

Can Bitcoin Overtake The World Currencies And Change World Economies?

The bitcoin logo

The bitcoin logo (Photo credit: Wikipedia)

Don’t dare to say that I know enough about Bitcoin, but it seems to me that this digital currency is on the rise.  TheVerge ‘Bitcoin exchange gains clearance to operate as a real bank in France‘ article reported that Bitcoin digital currency platform has just now gained a foothold in France.  This means, Bitcoin-Central, a Bitcoin exchange, will be able to operate as a real bank in France.  Will this mean more similar banking services derive from Bitcoin digital currency platform in France?  I clearly don’t know since the whole Bitcoin digital currency is still so new to me and probably to the majority of the people of the world.  Anyhow, it seems though France is going to go ahead and let Bitcoin rises, becoming a more reputable mean of transactions within France.

Of course, if you never heard about Bitcoin before, you probably are scratching your head right now.  For me, I have heard about Bitcoin, and I’m still scratching my head.  Bitcoin isn’t so easy to understand as how cash would be.  Cash has been around for as long as I know it.  Anyhow, Bitcoin isn’t cash, therefore people have a hard time to compare it to cash.  Bitcoin is so new, therefore people don’t really understand it.  Nonetheless, people do understand credit and credit card.  Nonetheless, credit and credit card don’t behave like cash after the credit had spent in a transaction, but Bitcoin does (I think).  How is this?  When credit has already being spent, the creditor wants the debtor to pay back the spent credit somehow; when the cash has already being spent, no creditor is expecting any compensation unless the debtor actually tied his or her credit with cash somehow and then spent such cash for whatever needs.  To the best of my knowledge, Bitcoin behaves like cash since no creditor is expecting a compensation unless there is a Bitcoin lending service that actually lends out Bitcoin (also known as BTC) as credit.  Then again, one can easily somehow acquire BTC with real cash and then crazily went into debt through credit.  So, in a sense BTC can be included in a chain of transactions with mixed types of currencies.  The question is, will people trust BTC enough to start spending like those other types of currencies (e.g., cash, credit, etc…).  Let not get into what is real currency, because I think all sorts of people will have different definitions for what to be real currency.  Is it back by gold?  Is it back by the government?  Is it back by what?  It gets crazy really.  In this very blog post and for the sake of simplicity, I like to refer currency as anything that can be spent to acquire something else and to complete a transaction in a meaningful way.  Meaningful way I said?  Yes, because such transactions have to be legal in the eyes of the mass (i.e., people).

Digital age makes Bitcoin possible, I think!  With digital age, Bitcoin can deliver its complex algorithm to encrypt and decrypt its BTC units.  Don’t ask me the technical side of this as I’m scratching my head just to think about it.  Anyhow, Bitcoin allows the owners of BTC to transact Bitcoin digitally and anonymously.  I sure don’t know how anonymous this would be though, because I’m still trying to figure out how Bitcoin actually works in practice.  I have not yet ever tried to use Bitcoin in practice, therefore I’m just amused as you are on Bitcoin (i.e., if you haven’t yet being familiarized with how Bitcoin works in practice).  On reading about Bitcoin though, I think the anonymity of Bitcoin derives from how Bitcoin is being a decentralized digital currency platform.  OK, to explain this in layman term (I might be off by a mile in explanation though), a BTC transaction would occur between the payer and the receiver and that’s it.  So, in a sense the anonymity is all about there isn’t a centralized bank to be able to track down a Bitcoin transaction.  Isn’t cash also operating similarly to this, to allow some anonymity between the payer and receiver?  If you pay someone with some cash for a transaction that nobody knows about, nobody would care right?  I guess we can safely say that all banks will simply ignore what you will do with the cash you own, but the banks will try to track down the stolen cash from their vaults though.  You get this right?  So, in a way Bitcoin is allowing this sort of anonymity to BTC owners.

Besides being a BTC owner, a BTC owner can actually mine for more BTCs.  How?  I’m still very unclear about this myself to be honest, but let me take a jab at this anyway.  Basically, I think BTC owner can execute Bitcoin command lines to command Bitcoin software to act as a server service on a computer and then mine for BTC units.  Please correct me if I’m wrong on this, I think Bitcoin software I’m talking about is the official one that is on the official Bitcoin website and this very software is also responsible for allowing Bitcoin owners to generate a Bitcoin wallet.  Bitcoin wallet?  It’s like a digital wallet where you can tuck your BTC units away just so you can use these BTC units digitally in a transaction (most likely a digital transaction too).  Nonetheless, I guess that you might be able to use Bitcoin physically in some places in France if Bitcoin-Central (Bitcoin exchange) succeeds in providing banking services through Bitcoin digital currency platform.  My apology of being digressed, let me get back to how Bitcoin owners can mine for more BTC units.  Basically, BTC units can be minted as long Bitcoin owners are willing to spend money on setting up powerful computers (e.g., servers, server networks, etc…) to mine for more BTC units.  To know more about the technical side of how each BTC unit is actually being minted, I think you have to look this up on the Internet since I don’t have a good explanation for this complex process.  Nonetheless, it boils down to the setup of hardware (i.e., computer with the ability to utilize strong processing powers of graphic cards and CPUs) and software, the computer resources, the energy that needs to be spent (i.e., electricity), and so on to get a Bitcoin mining operation going.

Obviously, acquiring BTCs through other means and not through mining for BTCs — it is all about providing services and products and then demanding BTCs as the currency of exchange/transaction.

In conclusion, I sense that if more countries follow France to approve and allow Bitcoin exchanges to behave as banks, then Bitcoin might upset how the world is using its currencies.  This scenario is possible, because Bitcoin isn’t exactly a specific currency in which a specific government has controlled over yet.  In a sense, Bitcoin is behaving like cash, but this new cash has embodied some of the Internet characteristics.  You can say, at this stage there isn’t yet a single government which can claim ownership over the entire Internet.  For better or worse, different people value Bitcoin differently, therefore Bitcoin isn’t so easily to be controlled unless all governments of the world begin to crackdown on Bitcoin usages.  I guess people who reside in France don’t have to worry about this much since Bitcoin is gaining popularity in France; if not it’s at least gaining popularity with the French government.  For the people who think Bitcoin can’t do a thing to upset the world currencies and how people will perform transactions across the world, I beg them to not underestimate Bitcoin popularity.  Just think about how the Internet has evolved, and we can somewhat make a deduction about the possibilities of Bitcoin in term of making a foothold in world currencies.  The Internet had a humbled beginning, but not for long before the Internet transformed how people shopped, read, wrote, thought, studied, communicated, banked, voted, and so much more in the late 20th century.  Obviously, the Internet is still transforming how people do things in the 21st century.  Although the Internet was new back then and was plagued with security issues, nothing had stopped the the Internet from taking over the world.  So, when I look at Bitcoin closer, I feel as if Bitcoin is behaving similarly to the Internet.  Since I’m not an economist, I can’t be sure that I know if this is a good thing or bad thing for the world economies, but I can feel that Bitcoin isn’t going away soon.  Even if Bitcoin loses steam in the future, I think Bitcoin has already paved a road in which the future generations might use Bitcoin as one of the futuristic currency scaffolds to discuss and reform their currencies.  What do you think?

Source:  http://www.theverge.com/2012/12/7/3740136/bitcoin-exchange-bank-france-bitcoin-central