Handing the Mafia a Currency Monopoly

The Russian government may have handed the Russian Mafia a currency monopoly. And the same thing could happen in the US.

Digital currencies, such as bitcoin and the so-called altcoins, are creating a revolution in technology and money. Because these are both absolutely critical to all aspects of our modern technological civilization, they will result in a revolutionary advancement in virtually every aspect of society.

However, some countries have decided that they don't want anything to do with digital currencies. One such country is Russia. They have banned digital currencies outright.

Unfortunately for Russia, that has no effect on criminals.

News Flash: Criminals Don't Obey Laws! Can You Believe It?

Criminals don't follow laws. Yes, it's shocking I know. But that's exactly what makes them criminals. While this seems to be such an obvious statement to make that it's a little silly to even say, this dead obvious fact is often lost on politicians.

Take gun control laws as an example. Many nations ban their citizens from owning guns. Australia and Japan are two such nations. But one only has to read the news from these two countries to know that crimes are being committed in both of them with guns. Gun control laws don't stop criminals from getting guns. They're criminals. They don't care about the stupid gun control laws.

The so-called War on Drugs is another great example. No amount of legislation has stopped the flow of drugs into the United States. Over the decades of the War on Drugs, the drug problem has only gotten larger and illegal drugs have only become more common.

The earth-shattering idea that criminals don't obey the laws passed by politicians who sit on their thrones on high is fundamental to being able to predict what will happen next with digital currencies in Russia.

Bad Guys Might Use Bitcoin! Let's Ban It!

An increasingly common argument that authorities make against digital currencies is that bad guys might use them, so they need to be banned.

Let's just stop a moment and look at reality. I know that's unfamiliar territory to our current overlords, but let's go there anyway.

Talking about the bad guys using bitcoins is deception by misdirection. The preferred currency of dictators, drug cartels, warlords, and bad guys around the world is the US dollar. In fact, these days, bad guys in certain places in South America, Asia, and Africa actually buy banks so that they can launder their ill-gotten gains . They move their money across national borders disguised as legitimate bank transactions.

Note: For more information on the activities of organized crime using legitimate banks to launder money, please see How the Russian mafia use the banking system (especially Britain's). For information on known members of organized crime that are owners or officers of mainstream banks, see this website.

Bitcoins are not even a consideration to most criminals right now. If we say that bitcoins should be eradicated because bad guys use it then we must say the same of the US dollar. 

So What Does All This Have to do with Russia?

The Russian central bank felt threatened by digital currencies (they should), so they did what non-democratic governments always do; they banned digital currencies.

Of course, all the criminals in Russia promptly obeyed the new laws. 

Just kidding. They didn't care at all.

Russian Mafia clans wisely decided that they didn't want the visibility of know digital currencies such as the bitcoin. Their answer? Just clone bitcoin technology and issue their own currencies.

That's right. Russian criminal organizations are already issuing their own digital currencies based on bitcoin technology. They are completely ignoring bitcoin and all other legitimate digital currencies.

Western law enforcement reports that at least three digital currencies issued by Mafia clans are already in circulation in Russia and central Asia. And their acceptance is quietly growing around the world. 

Note: For more information on cryptocurrencies issued by organized crime, see Bye, Bitcoin: Criminals Seek Other Crypto Currency and Mo Money Mo Problems.

Everyone in Russia who deals on the black market, and that is a lot of people, will sooner or later come in contact with these Mafia-issued currencies. They will decide whether or not they want to accept these currencies. As you might guess, most of them decide to accept Mafia-issued currencies when they encounter them so that they can keep doing business on the black market.

Russian criminals don't always stay in Russia. Sometimes they go to other countries-even the good ol' US of A. 

Do we actually think that once the bad guys move to the US that they'll STOP using their Mafia-issued currencies when those currencies makes it so very easy to move money across borders? Do we actually think that blackmarketeers who come to the US will not accept these currencies on US black markets?

The long and short of this is that Mafia-issued currencies are in use and their use is spreading worldwide.

What if Something Happens to the Ruble?

Imagine that the Russian ruble takes a nosedive.

Is this a realistic scenario?

Yes. The ruble has never been as strong as the dollar. It could very well tank completely.

In such a situation, what would the Russian people do for currency?

The answer is easy to predict. Those familiar with Mafia-issued digital currencies would simply reject the ruble and use their digital currencies. This would place holders of Mafia currencies in the position of being the only people in the country who have money. The various Mafia clans would issue as much currency as they could to accommodate the new demand for it. In short, they would have a virtual monopoly on currency in Russia.

Of course, the government would take steps to counteract that, but the history of the French Revolution shows that people will risk death rather than use bad money.

Note: For more information on this, please see “Fiat Money: Inflation in France”, Foundation for Economic Education, Irvington-on-Hudson, New York, 1959, pp. 75-89.

Could the Same Thing Happen in the US?

The simple answer is yes. It's very possible that if we ban digital currencies, the same scenario could play out here.

Many would object that the dollar is a stronger currency than the ruble. That is right. But the dollar is not invulnerable. For example, take a look at the following graph based on data from the US Federal Reserve Bank.

US dollar Value 3-value-of-the-dollar

This graph shows the dramatic decline of the buying power of the US dollar. As you can see, the dollar has lost 98% of its value in the last 100 years. Here's a quiz.

How long will it take to lose the last 2%?

A) Less than 100 years.

B) Less than 50 years.

C) Less than 25 years.

D) I don't have to worry. The government will fix it for me and take good care of me.

If you answered A, B, or C, then you should seriously look into digital currencies. 

If you answered D, well…good luck with that.

Free Markets and Digital Currencies

If legitimate organizations don’t get into issuing digital currencies, the bad guys will. They won’t care if countries outlaw it. They’ll do it anyway. Criminals don't obey laws.

And with the problems most national currencies are currently experiencing, people around the world will have profound motivations to accept and use digital currencies sponsored by criminal organizations as long as they're stable. It’s actually possible that if we don’t create a free market of competing currencies and our national currencies collapse, we could unintentionally hand over control of our entire worldwide economy to criminals. And no one could buy or sell unless they participated in the criminal economy. 

Hopefully we never see the conditions that could lead to the kind of extreme scenario discussed here. But applying free market principles to money itself ensures that this can’t happen. And it builds a healthier, fairer, and more humane economy for future generations.

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