Introduction
The Financial Times Lexicon delivers a withering description of traditional currency. “Paper money or coins of little or no intrinsic value in themselves and not convertible into gold or silver, but made legal tender by fiat (order) of the government.”
But that’s only half the story of what currency actually is. “Currency” needs no intrinsic value to support a financial system. Currency serves as an agent of a functional financial system, as a medium that a society entrusts to settle debt obligations. Further, fiat currencies indeed have value, fluctuating relative to other currencies.
But that’s only half the story of what currency actually is. “Currency” needs no intrinsic value to support a financial system. Currency serves as an agent of a functional financial system, as a medium that a society entrusts to settle debt obligations. Further, fiat currencies indeed have value, fluctuating relative to other currencies.
Cryptocurrency’s Anti-Inflationary FeaturesHere’s why owning a decentralised cryptocurrency such as Bitcoin may provide a hedge against a sharp fall in the value of a fiat currency. Bitcoin (and certain other cryptocurrencies) |
Inflationary Risks of Rising Government DeficitsIn contrast, when public spending in a country exceeds tax revenues, the government typically meets its spending obligations by printing money, borrowing money (issuing government bonds), or both. |
Printing Money vs. Government BorrowingPrinting money risks inflation through currency dilution. Borrowing money also poses inflationary risks. As the owner of a home mortgage knows, debt requires paying principal and interest to lenders. |
Risks of Unsustainable Borrowing CosT
Government borrowing and the printing of money represents a risk to a variety of countries with unstable fiscal and monetary policies. Excessive borrowing risks a downgrade of a country’s credit rating. Such a reduction would indicate a fall in confidence in a government’s ability to repay its loans. If the US credit rating falls sharply amidst higher borrowing – for example, China and Japan – large US Treasury bond buyers might demand higher interest rates, possibly prompting a debt crisis, including loan defaults.
Risks of a US Inflationary Spira
This scenario is not inconceivable. Paolo Mauro, deputy director in the Fiscal Affairs Department of the International Monetary Fund, has warned,.... |
Argentina – Ripe for Cryptocurrency
rgentina has already descended to such dire straits. Its currency is no longer trusted to serve as an agent in a corrupt, dysfunctional financial system. Santiago Siri, the Y Combinator-backed founder of Democracy Earth, who plans to bring crypto to voting, has recommended that the government of Argentina invest a small portion of its currency reserves in Bitcoin.
He forecasts a Bitcoin surge due to an escalating global trade war, “when foreign governments start abandoning dollars.”
He forecasts a Bitcoin surge due to an escalating global trade war, “when foreign governments start abandoning dollars.”